B-166727, JULY 15, 1969, 49 COMP. GEN. 41

B-166727: Jul 15, 1969

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CANCELLATION OF THE CONTRACT IS NOT REQUIRED. AS THE SMALL BUSINESS CONCERN IS CONSIDERED TO HAVE MADE A SIGNIFICANT CONTRIBUTION TO THE PRODUCTION OF THE "END ITEM" WITHIN THE TERMS OF THE CONTRACT ISSUED PURSUANT TO PARAGRAPH 1 706.5 OF THE ARMED SERVICES PROCUREMENT REGULATION. THERE IS NO BASIS TO OBJECT TO THE EXTENT OF LARGE BUSINESS SUBCONTRACTING. 1969: REFERENCE IS MADE TO YOUR LETTER OF APRIL 14. WHICH WAS 100-PERCENT SET-ASIDE FOR SMALL BUSINESS. THE ABOVE-MENTIONED CONTRACT WAS AWARDED TO LAND AIR INC. BIDS OR PROPOSALS UNDER THIS PROCUREMENT ARE SOLICITED FROM SMALL BUSINESS CONCERNS ONLY AND THIS PROCUREMENT IS TO BE AWARDED ONLY TO ONE OR MORE SMALL BUSINESS CONCERNS. THIS ACTION IS BASED ON A DETERMINATION BY THE CONTRACTING OFFICER THAT IT IS IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY.

B-166727, JULY 15, 1969, 49 COMP. GEN. 41

CONTRACTS -- AWARDS -- SMALL BUSINESS CONCERNS -- SUBCONTRACTING LIMITATION NOTWITHSTANDING THAT A SMALL BUSINESS CONCERN AWARDED A 100 PERCENT SET- ASIDE CONTRACT FOR LIFT PLUGS SUBCONTRACTED THE MAJOR PORTION OF THE MANUFACTURING PROCESS TO A LARGE BUSINESS FIRM, ONLY PERFORMING THE PAINTING, DIPPING, AND PACKAGING OF THE PLUGS, CANCELLATION OF THE CONTRACT IS NOT REQUIRED, AS THE SMALL BUSINESS CONCERN IS CONSIDERED TO HAVE MADE A SIGNIFICANT CONTRIBUTION TO THE PRODUCTION OF THE "END ITEM" WITHIN THE TERMS OF THE CONTRACT ISSUED PURSUANT TO PARAGRAPH 1 706.5 OF THE ARMED SERVICES PROCUREMENT REGULATION, WHICH DOES NOT DEFINE THE TERM "END ITEM." ABSENT THE PROMULGATION OF REGULATIONS TO LIMIT THE EXTENSION OF LARGE BUSINESS SUBCONTRACTING IN ORDER TO FURTHER THE SPIRIT AND INTENT OF THE STATUTES AFFECTING SMALL BUSINESS PARTICIPATION IN GOVERNMENT CONTRACTING, THERE IS NO BASIS TO OBJECT TO THE EXTENT OF LARGE BUSINESS SUBCONTRACTING.

TO THE SOUTHWEST TOOL & DIE CO., INC., JULY 15, 1969:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 14, 1969, PROTESTING THE LARGE BUSINESS SUBCONTRACTING PRACTICES OF LAND AIR INC. UNDER CONTRACT NO. DAAA09-69-C-0239, AWARDED BY THE ARMY AMMUNITION PROCUREMENT & SUPPLY AGENCY (APSA), WHICH WAS 100-PERCENT SET-ASIDE FOR SMALL BUSINESS.

THE ABOVE-MENTIONED CONTRACT WAS AWARDED TO LAND AIR INC. OF GRAND PRAIRIE, TEXAS, ON OCTOBER 29, 1968, FOR THE PROCUREMENT OF 4,000,000 PLUGS, LIFTING, TYPE "G," AT A PRICE OF $0.518 PER UNIT. THE CONTRACT PROVIDED IN PERTINENT PART: NOTICE OF TOTAL SMALL BUSINESS SET-ASIDE (JULY 1965):

A. RESTRICTION. BIDS OR PROPOSALS UNDER THIS PROCUREMENT ARE SOLICITED FROM SMALL BUSINESS CONCERNS ONLY AND THIS PROCUREMENT IS TO BE AWARDED ONLY TO ONE OR MORE SMALL BUSINESS CONCERNS. THIS ACTION IS BASED ON A DETERMINATION BY THE CONTRACTING OFFICER THAT IT IS IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, IN THE INTEREST OF WAR OR NATIONAL DEFENSE PROGRAMS, OR IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF GOVERNMENT PROCUREMENT IS PLACED WITH SMALL BUSINESS CONCERNS. BIDS OR PROPOSALS RECEIVED FROM FIRMS WHICH ARE NOT SMALL BUSINESS CONCERNS SHALL BE CONSIDERED NON RESPONSIVE AND SHALL BE REJECTED.

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 BIDDING 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 BIDS OR PROPOSALS 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; ***

ON DECEMBER 2, 1968, THE ADMINISTRATIVE CONTRACTING OFFICER, DEFENSE CONTRACT ADMINISTRATION SERVICES REGION (DCASR), DALLAS, ADVISED LAND AIR THAT ANY SUBCONTRACTING OF THE END ITEM TO A LARGE BUSINESS CONCERN WOULD BE IN VIOLATION OF THE SMALL BUSINESS SET-ASIDE CLAUSE IN ITS CONTRACT. YOUR LETTER DATED FEBRUARY 28, 1969, INFORMED APSA THAT LAND AIR WAS, IN FACT, SUBCONTRACTING WITH A LARGE BUSINESS CONCERN. ON THE BASIS OF YOUR REPRESENTATION, DCASR CONDUCTED AN INVESTIGATION AND, BY LETTER OF APRIL 16, 1969, DCASR INFORMED THE COMMANDER, APSA, JOLIET, ILLINOIS, THAT LAND AIR INC. IS PURCHASING FROM 80,000 TO 110,000 CASTINGS PER MONTH FROM TEXAS FOUNDRY (A LARGE BUSINESS CONCERN), AND THAT THESE CASTINGS ARE THEN BEING MACHINED BY LEFTEX, A SUBSIDIARY OF TEXAS FOUNDRY. ALSO, APSA WAS ADVISED THAT, UPON COMPLETION OF THREADING, THE CASTINGS TAKE ON THE IDENTITY OF LUGS WHICH ARE THEN SHIPPED TO LAND AIR INC. FOR PAINTING, DIPPING, PACKING AND PACKAGING. APSA THEREUPON DETERMINED "THAT LAND-AIR, INC. IS IN COMPLIANCE WITH THE SMALL BUSINESS REQUIREMENTS OF THEIR CONTRACT, NOTWITHSTANDING THE FACT THAT LAND-AIR IS PURCHASING LUGS WITH THREADING OPERATIONS COMPLETE FROM TEXAS FOUNDRY," AND THAT, "SO LONG AS LAND-AIR, INC. PERFORMED ANY PART OF THE MANUFACTURING PROCESS ON SUBJECT CONTRACT, THE CONTRACTOR WAS IN COMPLIANCE WITH THE SMALL BUSINESS REQUIREMENTS."

SINCE THE PROCUREMENT AGENCY ADMITS THE FACTS ARE SUBSTANTIALLY AS YOU HAVE STATED IN YOUR APRIL 14 LETTER, YOUR PROTEST MUST BE REGARDED AS CHALLENGING APSA'S DETERMINATION THAT LAND AIR IS IN COMPLIANCE WITH THE SMALL BUSINESS REQUIREMENTS OF ITS CONTRACT BECAUSE IT PAINTS, DIPS AND PACKAGES THE CONTRACT END ITEM (PLUGS).

ALTHOUGH WE HELD IN 37 COMP. GEN. 678 (1958) THAT THERE EXISTS NO STATUTORY PRESCRIPTION AGAINST THE PROMULGATION OF A REGULATION WHICH WOULD PRESERVE FOR SMALL BUSINESS ALL SUBCONTRACT WORK LET UNDER A SET ASIDE AWARD, OUR OFFICE WOULD NOT BE AUTHORIZED WITHOUT SUCH A REGULATION TO REQUIRE THE CANCELLATION OF A CONTRACT SUCH AS THE ONE HERE IN QUESTION. WE ALSO STATED IN THAT DECISION THAT A REGULATION, LIMITING THE AMOUNT OF WORK WHICH CONTRACTORS THAT RECEIVED SET-ASIDE AWARDS COULD SUBCONTRACT TO BIG BUSINESS, WOULD SEEM TO FURTHER BOTH THE SPIRIT AND INTENT OF THE STATUTES AFFECTING SMALL BUSINESS PARTICIPATION IN GOVERNMENT CONTRACTING. HOWEVER, THE POWER TO ISSUE SUCH A REGULATION IS NOT WITHIN THE JURISDICTION OF OUR OFFICE, AND NOTHING IN THE STATUTES GOVERNING SMALL BUSINESS AWARDS AFFIRMATIVELY STATES OR IMPLIES THAT SUCH A LIMITATION IS NECESSARILY CONCOMITANT WITH CONGRESSIONAL INTENT. THE STATUTES (10 U.S.C. 2301 AND 15 ID. 644) DECLARE THAT IN CERTAIN CONDITIONS AWARDS OF THE PRIME CONTRACTS SHOULD BE MADE TO SMALL BUSINESS, BUT ARE SILENT WITH RESPECT TO SUBCONTRACTS. THEREFORE, OUR OFFICE MAY DO NO MORE THAN INSIST THAT THE CONTRACTING AGENCY CONDUCT ITS SMALL BUSINESS PROCUREMENT IN A MANNER WHICH IS NOT INCONSISTENT WITH EXISTING LAW, REGULATION AND PROPER CONTRACT PROVISIONS. SEE, ALSO, B-148155, MAY 17, 1962. RETURNING TO THE END ITEM BEING FURNISHED BY LAND AIR INC., IT IS SIGNIFICANT TO NOTE THAT THE TERM "END ITEM" AS USED IN PARAGRAPH 1 706.5 OF THE ARMED SERVICES PROCUREMENT REGULATION, FROM WHICH THE CONTRACT "NOTICE OF TOTAL SMALL BUSINESS SET-ASIDE" CLAUSE WAS TAKEN, IS NOT DEFINED. CONSEQUENTLY, IT HAS BEEN THE POSITION OF OUR OFFICE THAT, SO LONG AS THE SMALL BUSINESS FIRM, WHICH HAS SUBCONTRACTED A MAJOR PORTION OF THE WORK TO LARGE BUSINESS, MAKES SOME SIGNIFICANT CONTRIBUTION TO THE MANUFACTURE OR PRODUCTION OF THE CONTRACT END ITEM, THE CONTRACTUAL REQUIREMENT THAT THE "END ITEM" BE MANUFACTURED OR PRODUCED BY SMALL BUSINESS CONCERNS HAS BEEN MET. SEE 39 COMP. GEN. 435 (1959); B-148155, SUPRA; B-154207, NOVEMBER 20, 1964.

FACTUALLY, THERE CAN BE NO DISPUTE THAT PAINTING, DIPPING AND PACKAGING OF THE LIFT PLUGS CONSTITUTE A SIGNIFICANT CONTRIBUTION TO THE PRODUCTION OF THE "END ITEM" INVOLVED HERE. SINCE SUCH WORK IS PERFORMED BY LAND AIR INC., IT MAY BE CONCLUDED THAT THE "END ITEM" IS, IN SIGNIFICANT PART, PRODUCED BY SMALL BUSINESS. THEREFORE, WE FIND NO LEGAL BASIS TO OBJECT TO THE EXTENT OF LARGE BUSINESS SUBCONTRACTING BY LAND AIR INC. UNDER THE SUBJECT CONTRACT.

ACCORDINGLY, YOUR PROTEST IS DENIED.