B-162440, NOV. 14, 1967

B-162440: Nov 14, 1967

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A DETERMINATION TO SET ASIDE AN ENTIRE PROCUREMENT FOR SMALL BUSINESS BASED ON FACTS THAT INDICATE A SUFFICIENT NUMBER OF BIDS WOULD BE RECEIVED TO ASSURE A REASONABLE PRICE IS NOT SUBJECT TO LEGAL OBJECTION WHEN LOWEST BID RECEIVED FROM SMALL BUSINESS CONCERN WAS REASONABLE. WITH RESPECT TO PROTESTANT'S CLAIM THAT SMALL BUSINESS BIDDER DOES NOT QUALIFY AS MANUFACTURER BUT IS DEALER FOR ITEM MANUFACTURED BY LARGE BUSINESS FIRM. IS BASIS FOR SUPPORTING ADMINISTRATIVE CONCLUSION THAT SMALL BUSINESS FIRM IS MANUFACTURER OF END ITEM. TO BLACK AND DECKER MANUFACTURING COMPANY: FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF SEPTEMBER 7. WRIGHT'S BID WAS THE LOWEST AT A UNIT PRICE OF $312.37. THAT THE PROCUREMENT SHOULD NOT HAVE BEEN SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION.

B-162440, NOV. 14, 1967

BIDDERS - RESPONSIBILITY - REGULAR DEALER, MANUFACTURER - DETERMINATION DECISION TO BLACK AND DECKER MFG. CO. DENYING PROTEST AGAINST AWARD TO WRIGHT TOOL CO. FOR FURNISHING INDEFINITE QUANTITY OF VALVE SEAT GRINDING KITS TO ARMY ON BASIS OF SMALL BUSINESS SET ASIDE. A DETERMINATION TO SET ASIDE AN ENTIRE PROCUREMENT FOR SMALL BUSINESS BASED ON FACTS THAT INDICATE A SUFFICIENT NUMBER OF BIDS WOULD BE RECEIVED TO ASSURE A REASONABLE PRICE IS NOT SUBJECT TO LEGAL OBJECTION WHEN LOWEST BID RECEIVED FROM SMALL BUSINESS CONCERN WAS REASONABLE. WITH RESPECT TO PROTESTANT'S CLAIM THAT SMALL BUSINESS BIDDER DOES NOT QUALIFY AS MANUFACTURER BUT IS DEALER FOR ITEM MANUFACTURED BY LARGE BUSINESS FIRM, FACT THAT MAJOR PORTION OF ITEM REPRESENTS NO MORE THAN 25 PERCENT OF PRICE, IS BASIS FOR SUPPORTING ADMINISTRATIVE CONCLUSION THAT SMALL BUSINESS FIRM IS MANUFACTURER OF END ITEM. HOWEVER THIS DECISION SHOULD NOT BE INTERPRETED AS DISPOSITIVE OF ACTIONS IN FUTURE PROCUREMENTS SINCE DETERMINATION MUST BE EVALUATED ON SPECIFIC FACTS IN EACH CASE.

TO BLACK AND DECKER MANUFACTURING COMPANY:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF SEPTEMBER 7, 1967, AND CONFIRMING LETTER OF SEPTEMBER 8, 1967, WITH ENCLOSURES, PROTESTING THE PROPOSED AWARD OF A CONTRACT TO THE WRIGHT TOOL COMPANY (WRIGHT) UNDER INVITATION FOR BIDS (IFB) DAAF01-67-B-0952, ISSUED BY ROCK ISLAND ARSENAL, ROCK ISLAND, ILLINOIS.

THE IFB REQUESTED BIDS ON A UNIT PRICE BASIS FOR AN INDEFINITE QUANTITY CONTRACT FOR ONE YEAR FOR ELECTRIC VALVE SEAT GRINDING KITS AND INCLUDED NOTICE THAT THE ENTIRE PROCUREMENT HAD BEEN SET ASIDE EXCLUSIVELY FOR SMALL BUSINESS. OF THE FOUR BIDS RECEIVED IN RESPONSE TO THE INVITATION, WRIGHT'S BID WAS THE LOWEST AT A UNIT PRICE OF $312.37.

YOUR PROTEST PRESENTS ESSENTIALLY TWO CONTENTIONS: FIRST, THAT THE PROCUREMENT SHOULD NOT HAVE BEEN SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION; AND SECOND, THAT WRIGHT IS NOT A MANUFACTURER OF THE KITS IT PROPOSES TO FURNISH THE GOVERNMENT BUT IS IN FACT A DEALER FOR AN ITEM MANUFACTURED BY A LARGE BUSINESS CONCERN. ACCORDINGLY, YOU HAVE REQUESTED CANCELLATION OF THE PROCUREMENT AND YOU PROPOSE THAT THE GOVERNMENT SHOULD READVERTISE FOR ITS REQUIREMENTS WITHOUT RESTRICTING PARTICIPATION TO SMALL BUSINESSES.

CONCERNING YOUR OBJECTION TO THE GOVERNMENT'S DECISION TO SET ASIDE THE ENTIRE PROCUREMENT FOR SMALL BUSINESS PARTICIPATION YOU STATE THAT AS A RESULT OF THIS RESTRICTION THE GOVERNMENT WILL PAY A HIGHER PRICE FOR THE GRINDING KITS, WHEREAS IF LARGE BUSINESSES HAD BEEN PERMITTED TO BID, BLACK AND DECKER WOULD HAVE OFFERED TO FURNISH THE ITEM AT A PRICE WHICH IS 10 PERCENT LESS THAN WRIGHT'S BID. ALSO, IN YOUR LETTER OF AUGUST 18, 1967, TO THE PROCURING ACTIVITY, YOU QUESTION WHETHER THE GOVERNMENT OBTAINED COMPETITIVE BIDS IN THIS CASE.

IN A REPORT TO THIS OFFICE THE CONTRACTING OFFICER STATES THAT A PROCUREMENT REVIEW AND ANALYSIS WAS CONDUCTED BY THE PROCURING ACTIVITY PRIOR TO THE DETERMINATION TO SET ASIDE THE ENTIRE PROCUREMENT FOR SMALL BUSINESS PARTICIPATION. THE PROCUREMENT HISTORY OF THIS ITEM OF SUPPLY INDICATES THAT AS RECENTLY AS 1966 FOUR SMALL BUSINESS CONCERNS SUBMITTED BIDS FOR A SIMILAR QUANTITY AND THAT AN AWARD WAS MADE TO WRIGHT AT A REASONABLE PRICE. THE PERFORMANCE OF THE SUCCESSFUL BIDDER WAS CONSIDERED TO BE SATISFACTORY. THUS, IN THE PRESENT CASE, THE CONTRACTING OFFICER AND THE SMALL BUSINESS SPECIALIST AGREED TO SET ASIDE THE ENTIRE PROCUREMENT FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION. THE CONTRACTING OFFICER ALSO STATES THAT WRIGHT'S BID PRICE IN THE INSTANT PROCUREMENT IS CONSIDERED TO BE REASONABLE.

PURSUANT TO THE PROVISIONS OF THE SMALL BUSINESS ACT, PUB. L. 85536, AS AMENDED (15 U.S.C. CHAPTER 14A) THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), SECTION 1-706.1 (A), PROVIDES THAT PROCUREMENT "* * * SHALL BE SET ASIDE FOR THE EXCLUSIVE PARTICIPATION OF SMALL BUSINESS CONCERNS WHEN SUCH ACTION IS DETERMINED BY THE SMALL BUSINESS SPECIALIST AND THE CONTRACTING OFFICER (UPON THE INITIATION OF EITHER) TO BE IN THE INTEREST OF (I) MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, (II) WAR OR NATIONAL DEFENSE PROGRAMS, OR (III) ASSURING THAT A FAIR PROPORTION OF GOVERNMENT PROCUREMENT IS PLACED WITH SMALL BUSINESS CONCERNS. IF THE SMALL BUSINESS SPECIALIST IS NOT AVAILABLE, THE FOREGOING DETERMINATION MAY BE MADE BY THE CONTRACTING OFFICER.'

ALSO, ASPR 1-706.5 (A) (1) PROVIDES, IN PERTINENT PART, THAT THE ENTIRE AMOUNT OF AN INDIVIDUAL PROCUREMENT MAY BE SET ASIDE EXCLUSIVELY FOR SMALL BUSINESS PARTICIPATION WHERE THERE IS A REASONABLE EXPECTATION THAT A SUFFICIENT NUMBER OF BIDS OR PROPOSALS WILL BE OBTAINED "SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES.'

OUR OFFICE HAS HELD THAT THE DETERMINATION AS TO WHETHER SUCH A REASONABLE EXPECTATION EXISTS IS WITHIN THE AMBIT OF SOUND ADMINISTRATIVE DISCRETION AND WE WILL NOT SUBSTITUTE OUR JUDGMENT FOR THAT OF THE CONTRACTING OFFICER IN THE ABSENCE OF A CLEAR SHOWING OF ABUSE OF THE DISCRETION PERMITTED HIM. 45 COMP. GEN. 228. ALSO, WE HAVE STATED THAT THE FACT THAT LOWER BIDS MAY BE EXPECTED FROM LARGE BUSINESS CONCERNS IS NOT A SIGNIFICANT FACTOR IN DETERMINING WHETHER A PROCUREMENT SHOULD BE SET ASIDE FOR SMALL BUSINESS PARTICIPATION ONLY. 43 COMP. GEN. 497. THE PRESENT CASE THE FACTS WHICH WERE CONSIDERED BY THE CONTRACTING OFFICER APPEAR TO JUSTIFY HIM IN CONCLUDING THAT HE WOULD RECEIVE A SUFFICIENT NUMBER OF BIDS TO ASSURE A REASONABLE PRICE, AND SINCE IT APPEARS THAT THE LOWEST BID RECEIVED WAS FOUND TO BE REASONABLE WE CANNOT CONCLUDE THAT THE PROPOSED AWARD IS LEGALLY OBJECTIONABLE BY REASON OF THE SMALL BUSINESS SET ASIDE.

IT IS ALSO YOUR CONTENTION THAT WRIGHT IS NOT IN FACT THE MANUFACTURER OF THE END ITEM UNDER THIS PROCUREMENT BUT PROPOSES TO FURNISH THE PRODUCT OF A LARGE BUSINESS. IN THIS REGARD YOU POINT OUT THAT ALL OF THE COMPONENTS INCLUDED IN THE KIT CAN BE PROVIDED BY AND ARE A PART OF THE NORMAL STOCK IN TRADE OF THE LARGE BUSINESS CONCERN WHICH WILL SUPPLY WRIGHT WITH THE BASIC VALVE SEAT GRINDER AND MUCH OF THE ACCESSORY EQUIPMENT INCLUDED IN THE KIT. IN YOUR OPINION THE MERE ASSEMBLING OF A KIT, ALL THE COMPONENTS OF WHICH ARE NECESSARY TO PERFORM THE REQUIRED FUNCTION AND ALL OF WHICH CAN NORMALLY BE PROVIDED BY THE LARGE BUSINESS SUPPLIER, IS AN INSUFFICIENT BASIS FOR CLASSIFYING WRIGHT AS A MANUFACTURER RATHER THAN A DEALER. YOU ALSO STATE THAT EVEN THOUGH WRIGHT WILL MODIFY THE BASIC GRINDER BY ADDING A RADIO INTERFERENCE SUPPRESSION SYSTEM, WHICH CONSISTS OF A SIMPLE FILTER OR CAPACITOR INSTALLED IN THE ELECTRICAL CIRCUIT OF THE DRIVER TOOL AND CAN BE INSTALLED BY THE MANUFACTURER OF THE BASIC TOOL, THIS ADDITION AMOUNTS TO PERHAPS 5 PERCENT OF THE COST OF THE BASIC GRINDER AND IS NOT SUFFICIENT TO CLASSIFY WRIGHT AS A MANUFACTURER.

IN THIS CONNECTION THE SUBJECT IFB DEFINES A SMALL BUSINESS CONCERN, AS FOLLOWS:

"/B) DEFINITION. A -SMALL BUSINESS CONCERN- IS A CONCERN, INCLUDING ITS AFFILIATES, WHICH IS INDEPENDENTLY OWNED AND OPERATED, IS NOT DOMINANT IN THE FIELD OF OPERATION IN WHICH IT IS QUOTING ON GOVERNMENT CONTRACTS, AND CAN FURTHER QUALIFY UNDER THE CRITERIA SET FORTH IN REGULATIONS OF THE SMALL BUSINESS ADMINISTRATION (CODE OF FEDERAL REGULATIONS, TITLE 13, SECTION 121.3-8). IN ADDITION TO MEETING THESE CRITERIA, A MANUFACTURER OR A REGULAR DEALER SUBMITTING OFFERS IN HIS OWN NAME MUST AGREE TO FURNISH IN THE PERFORMANCE OF THE CONTRACT END ITEMS MANUFACTURED OR PRODUCED IN THE UNITED STATES, ITS POSSESSIONS, OR PUERTO RICO, BY SMALL BUSINESS CONCERNS; PROVIDED, THAT THIS ADDITIONAL REQUIREMENT DOES NOT APPLY IN CONNECTION WITH CONSTRUCTION OR SERVICES CONTRACTS.' THE PROCURING ACTIVITY HAS REPORTED TO THIS OFFICE THAT:

"IN THE PRODUCTION OF THE ELECTRIC VALVE SEAT GRINDING KIT, THE WRIGHT TOOL COMPANY IS SHOWN TO MANUFACTURE VARIOUS SIZES OF EXPANDING PILOTS, A SOLID PILOT, A PILOT WRENCH, A VALVE SEAT DIAL INDICATOR ASSEMBLY, AND METAL CARRYING CASE FOR EACH KIT. IT ALSO MODIFIES THE ELECTRIC DRIVER WITH A RADIO INTERFERENCE SUPPRESSION SYSTEM, MODIFIES THE HOLDING BRACKET ON TWO CAPACITORS BEFORE INSTALLATION, MODIFIES ONE CAPACITOR WITH INSULATOR PLASTIC TUBING BEFORE INSTALLATION, AND MODIFIES A SIOUX WHEEL DRESSING TOOL WITH TWO STEEL SPINDLE SLEEVES MOUNTED ON A PILOT. A SIOUX WHEEL HOLDER, A SET OF FIFTY GRINDING WHEELS, AND A SET OF TWO MOTOR BRUSHES WERE PURCHASED ITEMS FOR EACH KIT WHICH REQUIRED NO MODIFICATION. THE WRIGHT TOOL COMPANY WAS ALSO REQUIRED TO PERFORM CERTAIN SERVICES SUCH AS INSPECTION AND TESTING OF THE ITEMS SPECIFIED IN THE IFB, MAKE ELECTROMAGNETIC COMPATIBILITY TESTS AS REQUIRED IN THE IFB, PREPARE AND SUBMIT TWO PHOTOGRAPHS REQUIRED IN THE IFB, PREPARE FIVE COPIES OF A HANDBOOK OF INSTRUCTIONS, AND SUPERVISE PREPARATION FOR DELIVERY.

"CONSIDERING THE WORK PERFORMED BY THE WRIGHT TOOL COMPANY IN MANUFACTURING CERTAIN ITEMS, MODIFYING OTHER PURCHASED ITEMS, AND ASSEMBLING ALL THE COMPONENT PARTS INTO THE END PRODUCT, .E., THE ELECTRIC VALVE SEAT GRINDING KIT, IT IS THE OPINION OF THE UNDERSIGNED THAT THE WRIGHT TOOL COMPANY IS A SMALL BUSINESS MANUFACTURER OF THE KIT.'

WHETHER A FIRM QUALIFIES AS A MANUFACTURER IS A QUESTION FOR DETERMINATION IN THE FIRST INSTANCE BY THE CONTRACTING OFFICER. IN OUR DECISION B-148260, MAY 8, 1962, COPY ENCLOSED, AN ANALAGOUS SITUATION WAS PRESENTED FOR OUR CONSIDERATION. IN THAT CASE A SMALL BUSINESS CONCERN PROPOSED TO PROVIDE THE GOVERNMENT WITH 1,000,000 METAL FALLOUT SHELTER SIGNS AND FOUR VARIETIES OF PRINTED OVERLAYS FOR THE SIGNS. THE SMALL BUSINESS BIDDER INTENDED TO SUBCONTRACT THE ENTIRE PROCUREMENT TO A LARGE BUSINESS EXCEPT FOR THE PRINTING OPERATION AND THE PACKAGING PROCESS. EVEN THOUGH IT WAS ESTABLISHED THAT THE LARGE BUSINESS SUBCONTRACTOR COULD MANUFACTURE THE COMPLETE SIGN WE UPHELD THE ADMINISTRATIVE FINDING THAT THE SMALL BUSINESS CONCERN QUALIFIED AS A MANUFACTURER OF THE END ITEM, WITHIN THE MEANING OF A DEFINITION SUBSTANTIALLY IDENTICAL TO THE ONE QUOTED ABOVE. WE HAVE ALSO HELD THAT A FIRM WHICH PERFORMS WORK ON AND ADDS MATERIAL TO A PRODUCT WHICH IS SMALL IN COMPARISON TO THE VALUE OF THE FINISHED PRODUCT MAY QUALIFY, NEVERTHELESS, AS A MANUFACTURER OF THE END ITEM, FOR PURPOSES OF THE BUY AMERICAN ACT AND IMPLEMENTING REGULATIONS. 39 COMP. GEN. 435.

IN THE LIGHT OF THE FACTS OF RECORD, INCLUDING THE FACT THAT THE ELECTRIC DRIVER, WHICH YOU APPARENTLY CONSIDER TO BE THE MAJOR ITEM OF THE KITS, APPEARS FROM YOUR CATALOG TO REPRESENT NO MORE THAN 25 PERCENT OF THE PRICE WHICH YOU SUGGEST COULD BE QUOTED BY YOU FOR THE KIT, WE MUST CONCLUDE THAT A SUBSTANTIAL BASIS EXISTS TO SUPPORT THE ADMINISTRATIVE CONCLUSION THAT WRIGHT IS THE MANUFACTURER OF THE END ITEM. HOWEVER, OUR DECISION IN THIS CASE SHOULD NOT BE INTERPRETED AS UNQUALIFIEDLY DISPOSITIVE OF THE PROPRIETY OF ACTIONS WHICH YOU SUGGEST YOU MAY TAKE IN CONNECTION WITH FUTURE PROCUREMENTS, SINCE THE DETERMINATION OF WHAT WILL CONSTITUTE "MANUFACTURE" IN ANY PARTICULAR CASE MUST BE EVALUATED ON THE SPECIFIC FACTS THERE INVOLVED.

FOR THE REASONS STATED WE FIND NO LEGAL OBJECTION TO THE AWARD OF THE CONTRACT TO WRIGHT, AND YOUR PROTEST IS DENIED.