B-163741, JUNE 28, 1968, 47 COMP. GEN. 793

B-163741: Jun 28, 1968

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WAS CORRECTLY CONSIDERED UNDER PARAGRAPH 12-603.2 (A) OF THE ARMED SERVICES PROCUREMENT REGULATION BY THE CONTRACTING OFFICER RATHER THAN UNDER SUBPARAGRAPH (B) PERTAINING TO MACHINE TOOLS. REVIEW OF THE DETERMINATION IS NOT FOR THE CONSIDERATION OF THE UNITED STATES GENERAL ACCOUNTING OFFICE BUT BY THE DEPARTMENT OF LABOR. BIDDERS - QUALIFICATIONS - MANUFACTURER OR DEALER - NOTICE OF DISQUALIFICATION ALTHOUGH THE CONTRACTING OFFICER IN APPLYING ELIGIBILITY REQUIREMENTS TO DETERMINE IF A BIDDER IS A "REGULAR DEALER" PURSUANT TO THE WALSH-HEALEY ACT. IS NOT REQUIRED TO NOTIFY A DISQUALIFIED BIDDER OF THE RIGHT TO APPEAL AN ADVERSE DETERMINATION TO THE DEPARTMENT OF LABOR FOR FINAL DETERMINATION.

B-163741, JUNE 28, 1968, 47 COMP. GEN. 793

BIDDERS - QUALIFICATIONS - MANUFACTURER OR DEALER - REVIEW THE DETERMINATION THAT A BIDDER OFFERING PORTABLE DRY HONING MACHINES DID NOT QUALIFY AS A REGULAR DEALER PURSUANT TO THE WALSH-HEALEY ACT, 41 U.S.C. 35 ET SEQ., WAS CORRECTLY CONSIDERED UNDER PARAGRAPH 12-603.2 (A) OF THE ARMED SERVICES PROCUREMENT REGULATION BY THE CONTRACTING OFFICER RATHER THAN UNDER SUBPARAGRAPH (B) PERTAINING TO MACHINE TOOLS. HOWEVER, REVIEW OF THE DETERMINATION IS NOT FOR THE CONSIDERATION OF THE UNITED STATES GENERAL ACCOUNTING OFFICE BUT BY THE DEPARTMENT OF LABOR, THE SECRETARY OF LABOR HAVING VESTED IN THE PROCUREMENT AGENCY THE INITIAL RESPONSIBILITY TO DETERMINE WHETHER A BIDDER QUALIFIES AS A MANUFACTURER OR DEALER, SUBJECT TO THE REVIEW OF THE DEPARTMENT OF LABOR, WHICH HAS THE FINAL AUTHORITY. BIDDERS - QUALIFICATIONS - MANUFACTURER OR DEALER - NOTICE OF DISQUALIFICATION ALTHOUGH THE CONTRACTING OFFICER IN APPLYING ELIGIBILITY REQUIREMENTS TO DETERMINE IF A BIDDER IS A "REGULAR DEALER" PURSUANT TO THE WALSH-HEALEY ACT, 41 U.S.C. 35 ET SEQ., IS NOT REQUIRED TO NOTIFY A DISQUALIFIED BIDDER OF THE RIGHT TO APPEAL AN ADVERSE DETERMINATION TO THE DEPARTMENT OF LABOR FOR FINAL DETERMINATION, THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM REQUIRES THAT EACH BIDDER HAVE HIS BID AND REGULAR DEALER ELIGIBILITY FAIRLY AND COMPLETELY CONSIDERED. THEREFORE, AMENDMENT OF PARAGRAPH 12- 603.2 (A) OF THE ARMED SERVICES PROCUREMENT REGULATION IS RECOMMENDED TO REQUIRE NOTIFICATION TO A BIDDER THAT DOES NOT QUALIFY AS A REGULAR DEALER.

TO THE VACU-BLAST CORPORATION, JUNE 28, 1968:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 2, 1968, WITH ENCLOSURES, AND SUPPLEMENTAL CORRESPONDENCE, PROTESTING ON YOUR BEHALF AND ON BEHALF OF CHAMBERLAIN'S VACU-BLAST SALES COMPANY, INCORPORATED, AGAINST REJECTION OF THE LATTER FIRM'S BID UNDER INVITATION FOR BIDS NO. N00383-68-B-0373, AND AWARD OF A CONTRACT TO ZERO MANUFACTURING COMPANY, BY THE UNITED STATES NAVY AVIATION SUPPLY OFFICE, PHILADELPHIA, PENNSYLVANIA. SINCE THE VALIDITY OF ZERO'S CONTRACT WAS CHALLENGED, IT WAS AFFORDED AN OPPORTUNITY TO SUBMIT EVIDENCE IN SUPPORT THEREOF, ITS VIEWS WERE SUBMITTED IN A REPORT DATED MAY 28, 1968.

THE SUBJECT INVITATION WAS ISSUED ON OCTOBER 12, 1967, FOR 153 PORTABLE DRY HONING MACHINES. THE FOLLOWING BIDS WERE RECEIVED AND OPENED ON NOVEMBER 13, 1967:

BIDDER UNIT BID PRICES CHAMBERLAIN'S ---------------------------------- $650 ZERO ---------- -------------------------------- 1,154 VACU-BLAST --- ------------------ --------------- 1,650 CYCLONE ------------------------- --------------- 2,695 BECAUSE THE CONTRACTING OFFICER SUSPECTED AN ERROR IN CHAMBERLAIN'S BID, HE REQUESTED VERIFICATION BY LETTER DATED NOVEMBER 16, 1967. CHAMBERLAIN CONFIRMED ITS BID PRICE BY LETTER OF NOVEMBER 21, 1967.

ON NOVEMBER 29, 1967 THE CONTRACTING OFFICER REQUESTED A PREAWARD SURVEY OF CHAMBERLAIN, WITH A SPECIFIC REQUEST FOR ADVICE AS TO WHETHER CHAMBERLAIN QUALIFIED AS A REGULAR DEALER AS REPRESENTED IN ITS BID; SPECIFIC INFORMATION AS TO CHAMBERLAIN'S RELATIONSHIP WITH YOUR FIRM, AND THE BASIS FOR ITS BID PRICE WAS ALSO REQUESTED. IN ITS REPORT DATED DECEMBER 20, 1967, THE SURVEY TEAM RECOMMENDED AWARD TO CHAMBERLAIN. HOWEVER, THE CONTRACTING OFFICER REQUESTED ADDITIONAL INFORMATION FROM THE SURVEY TEAM ON THE QUESTION OF CHAMBERLAIN'S STATUS AS A REGULAR DEALER. UNDER DATE OF JANUARY 26, 1968, THE FOLLOWING ADDITIONAL INFORMATION WAS FURNISHED:

(A) CHAMBERLAIN'S VACU-BLAST SALES CO., MAINTAINS A COMPLETE STOCK OF SPARE PARTS FOR DRY HONING MACHINES.

(B) ONE (1) OF EACH DRY HONING MACHINE IS MAINTAINED ON DISPLAY AND WOULD BE AVAILABLE FOR QUICK SALE. IF AN ORDER IS RECEIVED FOR MORE THAN ONE UNIT, THE ORDER IS PLACED WITH VACU-BLAST CORP. ABILENE, KANSAS FOR MANUFACTURE AND DIRECT SHIPMENT TO CUSTOMER. AS A RESULT, ON FEBRUARY 8, 1968, CHAMBERLAIN'S BID WAS REJECTED BECAUSE THE CONTRACTING OFFICER CONCLUDED, AMONG OTHER THINGS, THAT IT DID NOT QUALIFY AS A "REGULAR DEALER" UNDER ARMED SERVICES PROCUREMENT REGULATION 12-603.2 (A), WHICH PROVIDES IN PERTINENT PART, AS FOLLOWS:

(A) EXCEPT AS SET FORTH IN (B) BELOW, AS USED IN 12-601 A REGULAR DEALER IS A PERSON WHO OWNS, OPERATES, OR MAINTAINS A STORE, WAREHOUSE, OR OTHER ESTABLISHMENT IN WHICH MATERIALS, SUPPLIES, ARTICLES, OR EQUIPMENT OF THE GENERAL CHARACTER DESCRIBED BY THE SPECIFICATIONS AND REQUIRED UNDER THE CONTRACT ARE BOUGHT, KEPT IN STOCK, AND SOLD TO THE PUBLIC IN THE USUAL COURSE OF BUSINESS. IN ORDER TO QUALIFY AS A REGULAR DEALER, A BIDDER MUST BE ABLE TO SHOW BEFORE THE WARD:

(I)THAT HE HAS AN ESTABISHMENT OR LEASED OR ASSIGNED SPACE IN WHICH HE REGULARLY MAINTAINS A STOCK OF GOODS IN WHICH HE CLAIMS TO BE A DEALER; IF THE SPACE IS IN A PUBLIC WAREHOUSE, IT MUST BE MAINTAINED ON A CONTINUING, AND NOT ON A DEMAND, BASIS;

(II) THAT THE STOCK MAINTAINED IS A TRUE INVENTORY FROM WHICH SALES ARE MADE; THE REQUIREMENT IS NOT SATISFIED BY A STOCK OF SAMPLE OR DISPLAY GOODS, OR BY A STOCK CONSISTING OF SURPLUS GOODS REMAINING FROM PRIOR ORDERS, OR BY A STOCK UNRELATED TO THE SUPPLIES WHICH ARE THE SUBJECT OF THE BID, OR BY A STOCK MAINTAINED PRIMARILY FOR THE PURPOSE OF TOKEN COMPLIANCE WITH THE ACT FROM WHICH FEW, IF ANY, SALES ARE MADE.

AWARD WAS MADE TO ZERO MANUFACTURING COMPANY ON FEBRUARY 10, 1968. UNDER THE TERMS OF THE CONTRACT, THE ACQUISITION OF MATERIALS OR COMPONENTS FOR, OR THE COMMENCEMENT OF PRODUCTION OF, THE ITEM BEING PROCURED IS AT THE RISK OF THE CONTRACTOR UNTIL SUCH TIME AS HE HAS RECEIVED FIRST ARTICLE APPROVAL. WE UNDERSTAND THAT FIRST ARTICLE APPROVAL WAS GIEN ABOUT JUNE 5, 1968.

IN TELEGRAMS DATED FEBRUARY 14, 1968, ADDRESSED TO THE CONTRACTING OFFICER, ASO, YOU AND CHAMBERLAIN PROTESTED REJECTION OF THE LATTER'S BID. IN LETTERS DATED MARCH 2 AND 4, 1968, YOU AND CHAMBERLAIN, RESPECTIVELY, SET FORTH THE BASIS OF THE PROTEST. BASICALLY, THE CONTENTION IS THAT THE CONTRACTING OFFICER ERRONEOUSLY APPLIED THE DEFINITION OF "REGULAR DEALER" CONTAINED IN ASPR 12-603.2 (A), WHEN SUBPARAGRAPH (B) OF SECTION 12-603.2 SHOULD HAVE BEEN APPLIED. THE LATTER PARAGRAPH PROVIDES THAT FOR CERTAIN SPECIFIC PRODUCTS, SUCH AS MACHINE TOOLS, THERE ARE ALTERNATIVE DEFINITIONS OF "REGULAR DEALER," THE QUALIFICATIONS FOR WHICH ARE LISTED IN THE REGULATIONS OF THE SECRETARY OF LABOR, 41 CFR 50-201.101 (B). SUBPARAGRAPH (2) OF THE LATTER REGULATION PROVIDES THAT A MACHINE TOOL DEALER MAY QUALIFY AS A "REGULAR DEALER" IF HE POSSESSES, EITHER THROUGH CONTRACT OR AGREEMENT WITH A MANUFACTURER, THE RESPONSIBILITY FOR SELLING THAT MANUFACTURER'S PRODUCTS WITH RESPECT TO A SPECIFIC TERRITORY AND IS AUTHORIZED TO OFFER ITS PRODUCTS AND TO NEGOTIATE AND CONCLUDE CONTRACTS FOR THE FURNISHING THEREOF. YOU CONTEND THAT SINCE THE ITEMS BEING PROCURED ARE "IN THE CATEGORY OF SPECIAL INDUSTRIAL MACHINERY, SIMILAR TO MACHINE TOOLS AND OTHER CAPITAL GOODS PROCESSING EQUIPMENT," AND SINCE CHAMBERLAIN SELLS THE ITEM AS YOUR REPRESENTATIVE, IT QUALIFIES AS A REGULAR DEALER UNDER ASPR 12-603.2 (B). IN SUPPORT OF YOUR ARGUMENT THAT THESE ITEMS SHOULD BE CONSIDERED "MACHINE TOOLS," YOU STATE THAT IT COMES WITHIN THE WEBSTER DICTIONARY DEFINITION CITED BY THE CONTRACTING OFFICER, IS SO RECOGNIZED BY OTHER AGENCIES OF THE GOVERNMENT, AS WELL AS PRIVATE INDUSTRY, AND IS NOT REGULARLY STOCKED BY EITHER MANUFACTURERS OR THEIR REPRESENTATIVES. THE CONTRACTING OFFICER CONTENDS THAT HE CORRECTLY APPLIED THE USUAL DEFINITION OF "REGULAR DEALER" AS THE ITEM BEING PROCURED IS NOT A MACHINE TOOL SO AS TO MAKE THE ALTERNATIVE DEFINITION APPLICABLE. IN THIS CONNECTION, HE POINTS OUT THAT DRY HONING MACHINES ARE LISTED UNDER CLASS 4940,"MISCELLANEOUS MAINTENANCE AND REPAIR SHOP SPECIALIZED EQUIPMENT," IN "DOD PROCUREMENT CODING MANUAL, VOLUME 1"; THAT THE ITEM IS NOT LISTED IN CLASSES 3411 TO 3419 REFERRED TO IN ASPR 7-702.12, WHICH INCLUDE MACHINE TOOLS; AND THAT THE ITEM BEING PROCURED DOES NOT FIT THE DEFINITION OF A "MACHINE TOOL" AS DEFINED IN WEBSTER'S THIRD INTERNATIONAL DICTIONARY, UNABRIDGED, 1967. AS ADDITIONAL EVIDENCE THAT THE DRY HONING MACHINE IS NOT A "MACHINE TOOL," THE CONTRACTING OFFICER POINTS OUT THAT WHEN CHAMBERLAIN COMPLETED STANDARD FORM 129, BIDDER'S MAILING APPLICATION, IT CHECKED TYPE 1 REGULAR DEALER WHICH IS DEFINED THE SAME AS IN ASPR 12-603.2 (A), RATHER THAN TYPE 2 REGULAR DEALER WHICH INCLUDES "MACHINE TOOLS.' CHAMBERLAIN ALSO LISTED CLASSES 4940, 5345, AND 5350 AS THE CLASSES OF EQUIPMENT IT WAS INTERESTED IN BIDDING ON.

THE WALSH-HEALEY ACT, 41 U.S.C. 35, ET SEQ., PROVIDES THAT, WITH CERTAIN EXCEPTIONS NOT HERE MATERIAL, EVERY CONTRACT EXCEEDING $10,000 IN AMOUNT ENTERED INTO BY ANY GOVERNMENT AGENCY FOR THE PROCUREMENT OF SUPPLIES SHALL CONTAIN A STIPULATION THAT THE CONTRACTOR IS A MANUFACTURER OR REGULAR DEALER IN SUCH SUPPLIES AND THAT ANY BREACH OF SUCH STIPULATION SHALL CONSTITUTE GROUNDS FOR CANCELLATION OF THE CONTRACT. THE ACT, AS AMENDED, FURTHER PROVIDES (41 U.S.C. 38) THAT THE SECRETARY OF LABOR SHALL HAVE AUTHORITY TO ADMINISTER THE PROVISIONS OF THE ACT AND TO MAKE SUCH RULES AND REGULATIONS AS MAY BE NECESSARY TO THAT END. UNDER THAT AUTHORITY THE SECRETARY OF LABOR HAS ISSUED CERTAIN REGULATIONS APPEARING AT 41 CFR 50-201.101 (B) AND 50-201.104. THESE REGULATIONS HAVE BEEN SUPPLEMENTED BY ASPR 12-601 TO 12-604, INCLUSIVE.

UNDER THE ACT AND IMPLEMENTING REGULATIONS, A BIDDER TO BE ELIGIBLE FOR AWARD OF A CONTRACT EXCEEDING $10,000 MUST ESTABLISH THAT IT IS A MANUFACTURER OF, OR A REGULAR DEALER IN, THE SUPPLIES TO BE FURNISHED UNDER THE INVITATION. SEE ASPR 1-903.1 (V). THE SECRETARY OF LABOR, AUTHORIZED BY THE ACT TO ADMINISTER THE PROVISIONS THEREOF, AND TO PRESCRIBE THE RULES AND REGULATIONS WITH RESPECT THERETO, HAS VESTED IN THE PROCUREMENT AGENCY THE INITIAL RESPONSIBILITY TO DETERMINE WHETHER A BIDDER QUALIFIES AS A MANUFACTURER OR REGULAR DEALER, SUBJECT TO REVIEW BY THE DEPARTMENT OF LABOR WHICH HAS THE FINAL AUTHORITY. SEE "RULINGS AND INTERPRETATIONS," NO. 3 (WALSH-HEALEY PUBLIC CONTRACTS ACT), SECTION 29; 37 COMP. GEN. 676.

UNDER THE FOREGOING LAW AND REGULATIONS THE AUTHORITY TO REVIEW DETERMINATIONS AS TO WHETHER PARTICULAR FIRMS ARE REGULAR DEALERS IS WITH THE DEPARTMENT OF LABOR, NOT OUR OFFICE. B-162807, DECEMBER 27, 1967. ACCORDINGLY, ANY DISAGREEMENT YOU MAY HAVE WITH THE DETERMINATION MADE BY THE CONTRACTING OFFICER THAT CHAMBERLAIN WAS NOT A "REGULAR DEALER" UNDER THE STATUTORY REQUIREMENTS OF THE WALSH HEALEY ACT AND IMPLEMENTING REGULATIONS SHOULD BE TAKEN UP WITH THE DEPARTMENT OF LABOR.

UNLESS THAT DETERMINATION IS REVERSED, IT IS NOT NECESSARY FOR OUR OFFICE TO RULE ON THE MERITS OF THE OTHER REASONS ADVANCED BY THE CONTRACTING OFFICER AS REQUIRING REJECTION OF CHAMBERLAIN'S BID.

THE REGULATION CONCERNING THE CONTRACTING OFFICER'S RESPONSIBILITY FOR APPLYING THE ELIGIBILITY REQUIREMENTS UNDER THE WALSH-HEALEY ACT DOES NOT REQUIRE HIM TO NOTIFY A DISQUALIFIED BIDDER OF THE LATTER'S RIGHT TO APPEAL THE CONTRACTING OFFICER'S ADVERSE DETERMINATION TO THE DEPARTMENT OF LABOR FOR FINAL DETERMINATION IN THE KIND OF SITUATION CONSIDERED HERE. SINCE WE BELIEVE THAT THE INTEGRITY OF THE COMPETITIVE BID SYSTEM REQUIRES THAT EACH BIDDER HAVE HIS BID AND ELIGIBILITY FAIRLY AND COMPLETELY CONSIDERED, WE ARE SUGGESTING TO THE SECRETARY OF THE DEPARTMENT OF DEFENSE THAT CONSIDERATION BE GIVEN TO AN AMENDMENT OF THE REGULATION TO REQUIRE SUCH NOTIFICATION.

IN VIEW OF THE FOREGOING, THERE IS NO BASIS UPON WHICH OUR OFFICE MAY PROPERLY DISTURB THE CONTRACT AWARDED TO ZERO MANUFACTURING COMPANY.