B-164100, JUL. 5, 1968

B-164100, JUL. 5, 1968

TO MR. DAVID B. KIRBY:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 17, 1968, PROTESTING THAT AN AWARD SHOULD NOT HAVE BEEN MADE TO THE ROTATING COMPONENTS DIVISION OF THE INSTRUMENT SYSTEMS CORPORATION UNDER ARMY MISSILE COMMAND REQUEST FOR PROPOSALS DAAH01-68-R-1093 -- A TOTAL SET-ASIDE FOR SMALL BUSINESS -- BECAUSE ROTATING COMPONENTS WAS NOT A SMALL BUSINESS.

ROTATING COMPONENTS CERTIFIED ITSELF AS A SMALL BUSINESS CONCERN IN ITS JANUARY 26, 1968, PROPOSAL. IN ADDITION, IT STATED IN ITS PROPOSAL THAT IT IS OWNED OR CONTROLLED BY A PARENT COMPANY, INSTRUMENT SYSTEMS CORPORATION, HUNTINGTON, NEW YORK.

TO ASSIST IN A DETERMINATION OF RESPONSIBILITY, THE CONTRACTING OFFICER REQUESTED A PREAWARD SURVEY OF ROTATING COMPONENTS FROM THE DEFENSE CONTRACT ADMINISTRATION SERVICES. THE CONTRACTING OFFICER RECEIVED A PREAWARD SURVEY DATED FEBRUARY 18, 1968, SHOWING THAT THE COMPANY WAS COMPOSED OF 263 EMPLOYEES AND THAT IT WAS A DIVISION OF INSTRUMENT SYSTEMS CORPORATION. THE REQUEST FOR PROPOSALS PROVIDED THAT A SMALL BUSINESS CONCERN IS ONE WHICH, INCLUDING ITS AFFILIATES, EMPLOYS 500 OR LESS EMPLOYEES. BASED ON THE FOREGOING, AND AFTER NEGOTIATIONS WITH ELIGIBLE OFFERORS, THE CONTRACTING OFFICER MADE AN AWARD TO ROTATING COMPONENTS ON MARCH 5, 1968, AS THE LOWEST RESPONSIVE, RESPONSIBLE OFFEROR.

YOUR COMPANY SUBSEQUENTLY FILED A PROTEST AGAINST THE AWARD WITH THE CONTRACTING OFFICER, WHO FORWARDED IT TO THE SMALL BUSINESS ADMINISTRATION FOR CONSIDERATION IN FUTURE PROCUREMENTS. BY LETTER OF APRIL 19, 1968, THE SMALL BUSINESS ADMINISTRATION INFORMED THE CONTRACTING OFFICER THAT IT HAD RECEIVED A LETTER FROM ROTATING COMPONENTS DATED APRIL 17, 1968, ACKNOWLEDGING THAT IT HAD MERGED WITH INSTRUMENT SYSTEMS CORPORATION AS OF DECEMBER 27, 1967, AND THAT THE TOTAL NUMBER OF EMPLOYEES, TOGETHER WITH INSTRUMENT SYSTEMS CORPORATION, EXCEEDS 500. THE APRIL 19 LETTER STATED THAT BASED ON SUCH INFORMATION ROTATING COMPONENTS DOES NOT QUALIFY AS SMALL BUSINESS ON PROCUREMENTS WHERE THE 500-EMPLOYEE SIZE STANDARD IS APPLIED.

THE SMALL BUSINESS ADMINISTRATION IN A REPORT TO OUR OFFICE ADVISED THAT SINCE THE COMBINED NUMBER OF EMPLOYEES OF ROTATING COMPONENTS AND INSTRUMENT SYSTEMS CORPORATION EXCEEDED 500 PERSONS, ROTATING COMPONENTS KNEW, OR SHOULD HAVE HAD REASON TO BELIEVE, AT THE TIME IT SUBMITTED ITS PROPOSAL AND AT THE TIME OF AWARD THAT IT DID NOT QUALIFY AS A SMALL BUSINESS CONCERN FOR THE PROCUREMENT.

THE DEPARTMENT OF THE ARMY, ON THE OTHER HAND, HAS ADVISED THAT IT HAS ASCERTAINED FROM INFORMATION AVAILABLE FROM THE SECURITIES AND EXCHANGE COMMISSION THAT INSTRUMENT SYSTEMS CORPORATION FILED A STATEMENT IN DECEMBER 1967 DISCLOSING THAT IT HAD ACQUIRED ALL THE ASSETS OF ROTATING COMPONENTS THROUGH A WHOLLY OWNED SUBSIDIARY OF INSTRUMENT SYSTEMS UNDER A PLAN OF REORGANIZATION WHEREBY ROTATING COMPONENTS AGREED PROMPTLY AFTER CLOSING TO CEASE ITS BUSINESS ACTIVITIES AND TERMINATE ITS CORPORATE EXISTENCE. ALTHOUGH CORRESPONDENCE IN THE COMMISSION FILE STATES THAT THE MERGER WAS RETROACTIVE TO DECEMBER 27, 1967, ROTATING COMPONENTS HAD NOT LIQUIDATED ITS BUSINESS AT THE TIME IT SUBMITTED ITS OFFER OF JANUARY 26, 1968, NOR HAD IT DONE SO AT THE TIME OF THE PREAWARD SURVEY. THE ARMY REPORT STATES FURTHER THAT THE FINAL TRANSACTION CLOSING THE MERGER MAY HAVE OCCURRED ON FEBRUARY 28, 1968. THIS BELIEF IS BASED UPON A LETTER CIRCULATED TO ALL CUSTOMERS OF ROTATING COMPONENTS ASSERTING THAT IT HAD BECOME A DIVISION OF INSTRUMENT SYSTEMS ON THAT DATE. CONCLUDING, THE ARMY REPORT ADVISES:

"HERE, THE OFFEROR DID NOT QUESTION ITS ELIGIBILITY AT THE TIME IT SUBMITTED ITS OFFER ON 26 JANUARY 1968, SINCE THE MERGER WAS STILL PENDING AND APPARENTLY WAS NOT EFFECTED UNTIL A MONTH LATER. WHILE THE SEQUENCE OF EVENTS RAISES CERTAIN QUESTIONS, ROTATING COMPONENTS, INC., ON 26 JANUARY 1968, DID HAVE BASIS FOR SELF-CERTIFICATION AS AS MALL BUSINESS CONCERN AND AS INDICATED IN B-163128, THIS AWARD IS AUTHORIZED UNDER PERTINENT REGULATIONS AND IS BINDING UPON THE GOVERNMENT WITHOUT REGARD TO SUBSEQUENT DETERMINATIONS BY THE SBA AS TO THE STATUS OF THE FIRM.'

OUR DECISION B-163128 DATED APRIL 24, 1968, HELD IN PERTINENT PART:

"IT IS OUR POSITION THAT A CONTRACT AWARDED TO A CONTRACTOR WHO IS SUBSEQUENTLY DETERMINED NOT TO BE SMALL BUSINESS IS VOIDABLE AND MAY BE REQUIRED TO BE CANCELLED IF THE AWARD WAS MADE ON THE BASIS OF AN AWARDEE'S SELF-CERTIFICATION WHICH WAS EITHER MADE IN BAD FAITH OR ACCEPTED BY THE CONTRACTING OFFICER IN BAD FAITH. 41 COMP. GEN. 252; B 147973, APRIL 9, 1962. YOU CONTEND THAT THE CONTRACTING OFFICER IN THIS CASE ACTED IN BAD FAITH BECAUSE HE DID NOT HAVE ANY PRIOR DECISIONS OF THE SBA BEFORE HIM WHICH CONFIRMED ABC'S STATUS AS A SMALL BUSINESS WHEN HE MADE THE AWARD. WE CANNOT CONSIDER THIS AS EVIDENCE OF BAD FAITH IN THE LIGHT OF THE SPECIFIC PROVISION IN ASPR 1-703 THAT CONTRACTING OFFICERS MAY ACCEPT ANY BIDDER'S SIZE CERTIFICATION AT FACE VALUE WITHOUT DEMANDING FURTHER EVIDENCE OF SMALL BUSINESS SIZE. CLEARLY, IF THE CONTRACTING OFFICER KNEW OF PRIOR SBA RULINGS DENYING SMALL BUSINESS STATUS TO ABC, OR IF HE POSSESSED OTHER INFORMATION INDICATING THAT THE CONCERN COULD NOT QUALIFY AS A SMALL BUSINESS, HE WOULD HAVE SHOWN BAD FAITH HAD HE MADE AN AWARD TO THE COMPANY WITHOUT REQUESTING SBA TO REVIEW THE SIZE STATUS SO CERTIFIED. HOWEVER, IN THE ABSENCE OF ANY INDICATION OF SUCH KNOWLEDGE WE CANNOT CONCLUDE THAT THE CONTRACTING OFFICER ACTED IN BAD FAITH IN MAKING THE SUBJECT AWARD. SIMILARLY, TO ESTABLISH THAT ABC CERTIFIED ITS SMALL BUSINESS STATUS IN BAD FAITH WOULD REQUIRE A SHOWING THAT ABC POSSESSED KNOWLEDGE OF PRIOR, ADVERSE, SBA DECISIONS ON ITS SMALL BUSINESS STATUS, OR THAT IT HAD INFORMATION WHICH WOULD PLACE A REASONABLY PRUDENT BIDDER ON NOTICE THAT IT SHOULD FORMALLY APPLY FOR A SMALL BUSINESS CERTIFICATE PRIOR TO SELF-CERTIFICATION. SEE 41 COMP. GEN. 47, 55.'

WHILE THE REPORTS OF THE SMALL BUSINESS ADMINISTRATION AND THE DEPARTMENT OF THE ARMY CLEARLY RAISE AN ISSUE AS TO WHETHER ROTATING COMPONENTS EXERCISED GOOD FAITH IN CERTIFYING ITSELF AS A SMALL BUSINESS CONCERN, THAT ISSUE NEED NOT BE RESOLVED BY OUR OFFICE. A CONTRACT AWARDED TO A CONTRACTOR WHO IS SUBSEQUENTLY DETERMINED NOT TO BE SMALL BUSINESS IS NOT VOID AB INITIO BUT IS VOIDABLE ONLY AT THE OPTION OF THE GOVERNMENT. COMP. GEN. 252. IN THIS CASE, THE DEPARTMENT OF THE ARMY HAS ADVISED THAT THE PROCUREMENT HAS AN ISSUE PRIORITY DESIGNATOR 06 INDICATING SHORT DELIVERY REQUIREMENTS AND A CRITICAL SUPPLY POSITION FOR A REPAIR PART FOR A MISSILE SYSTEM DEPLOYED IN SOUTHEAST ASIA AND THAT CANCELLATION OF THE CONTRACT WOULD BE DETRIMENTAL TO THE GOVERNMENT'S INTEREST AND WOULD RESULT IN SERIOUS DELAY OF A HIGH PRIORITY ITEM URGENTLY REQUIRED. THEREFORE, IT WOULD NOT BE IN THE GOVERNMENT'S BEST INTEREST TO CANCEL THE CONTRACT AT THIS TIME.

YOUR CONTENTION THAT IT IS NOT POSSIBLE TO ENTER A TIMELY PROTEST AGAINST THE SMALL BUSINESS STATUS OF ANOTHER OFFEROR IN A NEGOTIATED PROCUREMENT AND THAT A REVISION OF THE ARMED SERVICES PROCUREMENT REGULATION IS IN ORDER HAS BEEN PREVIOUSLY CONSIDERED BY OUR OFFICE. ON APRIL 24, 1968, OUR OFFICE RECOMMENDED TO THE ARMED SERVICES PROCUREMENT REGULATION COMMITTEE AND THE SMALL BUSINESS ADMINISTRATION THAT CORRECTIVE ACTION SHOULD BE TAKEN TO PROVIDE A PRACTICAL PROCEDURE FOR CONTESTING SMALL BUSINESS SIZE CERTIFICATIONS IN NEGOTIATED PROCUREMENTS PRIOR TO AWARD. THE SMALL BUSINESS ADMINISTRATION HAS ADVISED OUR OFFICE THAT ITS SIZE APPEAL BOARD WILL CONSIDER A PROTEST IN A NEGOTIATED PROCUREMENT AS TIMELY IF FILED WITHIN 5 WORKING DAYS FROM THE DATE THE PROTESTING OFFEROR HAS NOTICE OF THE AWARD. WE ARE FURTHER ADVISED THAT THE ADMINISTRATION IS UNDERTAKING DISCUSSIONS WITH THE DEPARTMENT OF DEFENSE TO IMPLEMENT SUCH CHANGE IN PROCEDURE.

HOWEVER, FOR THE REASONS SET OUT ABOVE, YOUR REQUEST THAT THE AWARD BE CANCELED IS DENIED.