B-164377, JUL. 26, 1968

B-164377, JUL. 26, 1968

TO EMERSON-SACK-WARNER CORPORATION:

REFERENCE IS MADE TO THE LETTER OF MAY 7, 1968, WHICH WAS FORWARDED TO OUR OFFICE FOR REVIEW. YOU HAVE PROTESTED AGAINST THE DETERMINATION TO CANCEL INVITATION FOR BIDS NO. DAAE07-68-B-0866, ISSUED BY THE UNITED STATES ARMY TANK - AUTOMOTIVE COMMAND, WARREN, MICHIGAN, FOR THE PROCUREMENT OF 681 LEFT FRONT FENDER ASSEMBLY UNITS FOR 2-1/2 TON TRUCKS IN ACCORDANCE WITH THE LISTED SPECIFICATIONS AND DRAWINGS.

THE PROCUREMENT WAS A TOTAL SET-ASIDE IN FAVOR OF SMALL BUSINESS CONCERNS. THE INVITATION WAS COMMUNICATED TO 38 SMALL BUSINESS FIRMS AND TWO CONCERNS SUBMITTED BIDS. YOUR BID AT A UNIT PRICE OF $211.81 LESS DISCOUNTS OF 1 PERCENT, 10 DAYS AND 1/2 PERCENT, 20 DAYS WAS LOW. THE OTHER BID WAS FROM A. C. BALL COMPANY AT A UNIT PRICE OF $248.21 LESS A DISCOUNT OF 1 PERCENT, 20 DAYS.

PRICES OBTAINED IN PRIOR PROCUREMENTS OF THE ITEM DESCRIBED IN THE ABOVE INVITATION ON AN UNRESTRICTED BASIS ARE AS FOLLOWS:

DATE QUANTITY UNIT PRICE

APRIL 15, 1966 20 EA. $46.33

APRIL 20, 1966 343 EA. 49.73

MAY 17, 1966 236 EA. 45.10

SEPTEMBER 10, 1966155 EA. 46.77

SEPTEMBER 22, 1966 388 EA. 52.91

JULY 12, 1967 6 EA. 81.17 THE AVERAGE UNIT PRICE IN PRIOR PROCUREMENTS WAS $49.56.

IN A RECENT UNRESTRICTED ADVERTISED PROCUREMENT FOR 460 RIGHT FRONT FENDER ASSEMBLY UNITS, WHICH MATCH THE UNITS IN THE INSTANT PROCUREMENT, THE UNIT PRICE IN THE LOW BID WAS $45.24 LESS A DISCOUNT OF 1/4 PERCENT, 20 DAYS. THE UNIT PRICE IN THE SECOND LOW BID IN THAT PROCUREMENT WAS $81.80 LESS A DISCOUNT OF 1/2 PERCENT, 10 DAYS. YOU BID IN THAT PROCUREMENT WAS AT A UNIT PRICE OF $211.67 LESS DISCOUNTS OF 2 PERCENT, 10 DAYS AND 1/2 PERCENT, 20 DAYS. A CONTRACT FOR THE RIGHT FENDER UNITS WAS AWARDED ON JUNE 10, 1968.

A REPORT WAS PREPARED BY A PRICING ANALYST AND IT WAS CONCLUDED THAT THE PRICE IN YOUR BID UNDER THE SET-ASIDE INVITATION WAS EXCESSIVE WHEN COMPARED WITH PRICES WHICH HAD BEEN OBTAINED IN PRIOR PROCUREMENTS. THE PRICING ANALYST ALSO FOUND THAT IN ORDER TO HAVE COMPETITION WITH THE PRIOR SUPPLIER IT WOULD BE NECESSARY TO HAVE A PROCUREMENT OF A SUFFICIENT NUMBER OF UNITS TO PERMIT CONCERNS TO ABSORB TOOLING COSTS. THE PROCUREMENT OF 681 UNITS WAS NOT CONSIDERED ADEQUATE FOR THIS PURPOSE. THE PRICING ANALYST'S RECOMMENDATION WAS THAT THE ABOVE INVITATION SHOULD BE CANCELLED AND THE PROCUREMENT READVERTISED ON AN UNRESTRICTED BASIS.

IN VIEW OF THE ABOVE FACTORS INCLUDING THE PRICING ANALYST'S REPORT, THE CONTRACTING OFFICER DETERMINED THAT AN AWARD COULD NOT BE MADE AT A REASONABLE PRICE AND PURSUANT TO ARMED SERVICES PROCUREMENT REGULATION 2- 404.1 (B) (VI), THE INVITATION WAS CANCELLED. IN ACCORDANCE WITH ASPR 1- 706.3 (A) THE PRESENT REQUIREMENT HAS BEEN READVERTISED IN AN UNRESTRICTED SOLICITATION UNDER INVITATION FOR BIDS NO. DAAE07-68-B-1968 FOR A TOTAL OF 1,135 OF THE FENDER ASSEMBLY UNITS. WE ASSUME THAT YOUR CONCERN WAS INVITED TO BID ON THIS PROCUREMENT.

THE ARMY HAS ADVISED THAT PRIOR TO CANCELLATION OF THE SET-ASIDE INVITATION, SBA WAS NOTIFIED THAT PRICES UNDER THAT INVITATION WERE UNREASONABLE AND THAT THE REQUIREMENTS WOULD BE READVERTISED ON AN UNRESTRICTED BASIS.

ASPR 1-706.3 (A) PROVIDES FOR THE WITHDRAWAL OF A SMALL BUSINESS SET ASIDE WHEN IT IS CONSIDERED THAT AWARD UNDER THE SET-ASIDE WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST BECAUSE OF UNREASONABLE PRICE. OUR OFFICE HAS RECOGNIZED THE PROPRIETY OF CANCELLING AN INVITATION WHICH WAS RESTRICTED TO SMALL BUSINESS CONCERNS AND READVERTISING ON AN UNRESTRICTED BASIS IN CIRCUMSTANCES SIMILAR TO THOSE PRESENTED IN THIS CASE AND A COMPREHENSIVE ANALYSIS OF THIS VIEW APPEARS IN B-149889, NOVEMBER 2, 1962, WHICH WE QUOTE:

"WHILE THERE CAN BE NO DOUBT THAT THE PROVISIONS OF THE SMALL BUSINESS ACT AUTHORIZE THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS AT PRICES WHICH MAY BE HIGHER THAN THOSE OBTAINABLE BY UNRESTRICTED COMPETITION, WE ARE AWARE OF NO VALID BASIS UPON WHICH IT MAY BE CONCLUDED THAT THIS ACT WAS INTENDED TO REQUIRE THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS AT PRICES CONSIDERED UNREASONABLE BY THE CONTRACTING AGENCY, OR THAT THE CONTRACTING AGENCY WOULD BE PROHIBITED FROM WITHDRAWING A SET-ASIDE DETERMINATION WHERE THE BIDS SUBMITTED BY SMALL BUSINESS CONCERNS WERE CONSIDERED UNREASONABLE. CONVERSELY, THE PROVISIONS OF SECTION 2 (15) OF THE SMALL BUSINESS ACT, 15 U.S.C. 644, REQUIRING DISAGREEMENTS BETWEEN THE SMALL BUSINESS ADMINISTRATION AND THE CONTRACTING AGENCY WITH RESPECT TO THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS TO BE SUBMITTED FOR DETERMINATION TO THE HEAD OF THE PROCURING AGENCY, WOULD APPEAR TO CLEARLY INDICATE A CONGRESSIONAL INTENTION THAT DISCRETION AND FINAL AUTHORITY TO DECIDE WHETHER AN AWARD SHOULD BE MADE, EVEN UNDER A JOINT DETERMINATION TO SET ASIDE, WAS TO BE LEFT IN THE PROCURING AGENCY. IT IS THEREFORE OUR OPINION THAT THE REGULATIONS QUOTED ABOVE, PERMITTING SET-ASIDE ACTION ONLY WHERE THERE IS A REASONABLE EXPECTATION OF SUFFICIENT COMPETITION TO PRODUCE REASONABLE PRICES AND PROVIDING FOR WITHDRAWAL OF THE SET-ASIDE WHERE THAT EXPECTATION IS NOT REALIZED, ARE NOT IN CONFLICT WITH THE SMALL BUSINESS ACT. THE WITHDRAWAL OF A SET-ASIDE, BASED UPON A PROPER DETERMINATION THAT BID PRICES RECEIVED FROM SMALL BUSINESS CONCERNS ARE UNREASONABLE, THEREFORE REPRESENTS A VALID EXERCISE OF THE AUTHORITY OF A CONTRACTING AGENCY.'

WE HAVE NO DOUBT THAT THE PROFIT FACTOR IN YOUR PRICE WAS REASONABLE. HOWEVER, THE PROFIT FACTOR IN YOUR PRICE WOULD NOT BY ITSELF ESTABLISH THAT THE GOVERNMENT WAS OBTAINING THE ITEMS AT A REASONABLE PRICE. IT IS OUR VIEW THAT THE CONTRACTING OFFICER PROPERLY COMPARED THE PRICE IN YOUR BID WITH PRICES OBTAINED IN PRIOR UNRESTRICTED PROCUREMENTS IN MAKING HIS DETERMINATION REGARDING THE REASONABLENESS OF YOUR PRICE. THIS COMPARISON CLEARLY INDICATED THAT THE PREMIUM WHICH THE GOVERNMENT WOULD HAVE HAD TO PAY FOR AN AWARD TO A SMALL BUSINESS FIRM UNDER THE RESTRICTED INVITATION WOULD HAVE BEEN SO SUBSTANTIAL THAT IT WAS INCUMBENT UPON THE CONTRACTING OFFICER IN THE PROPER DISCHARGE OF HIS DUTIES TO MAKE THE DETERMINATION THAT SUCH AN AWARD WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST. IN THE CIRCUMSTANCES WE FIND NO BASIS FOR QUESTIONING THE ACTIONS TAKEN BY THE PROCURING ACTIVITY.

THE CONTRACTING OFFICER HAS ADVISED THAT AN INVESTIGATION WAS MADE TO DETERMINE THE SOURCE OF TOOLING USED BY WHITE MOTOR CORPORATION, THE PRIOR SUPPLIER FOR THE ITEM. IT WAS FOUND THAT THE TOOLING WAS COMPLETELY OWNED BY WHITE MOTOR CORPORATION AND THAT THE GOVERNMENT DID NOT PROVIDE THIS MANUFACTURER WITH THE TOOLING OR OTHERWISE SUBSIDIZE THE MANUFACTURER IN THE PRODUCTION OF THE ITEM.