B-167036, FEB. 18, 1970

B-167036: Feb 18, 1970

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CONFLICT OF INTEREST DECISION DENYING PROTEST AGAINST AWARD OF MULTI-YEAR GUARD SERVICE CONTRACT TO LOW BIDDER ON BASIS THAT THE WIFE OF THE PRESIDENT OF THE FIRM SUBMITTING THE LOW BID IS A GOVERNMENT EMPLOYEE OF THE CONTRACTING AGENCY. THE WIFE OF A LOW BIDDER WHO HAS AN INCHOATE INTEREST IN COMMUNITY PROPERTY BUT WHO DOES NOT HAVE ANY CONTROL OF THE COMPANY AND IS EMPLOYED AS A GOVERNMENT SECRETARY WITHOUT ANY AUTHORITY OR INFLUENCE IN SELECTION OF CONTRACTS MAY NOT HAVE SUCH RELATIONSHIP REGARDED AS "OWNERSHIP" UNDER ASPR 1-302.6 (A). THEREFORE AWARD WILL NOT BE SUBJECT TO OBJECTION. INC.: REFERENCE IS MADE TO YOUR LETTER OF MAY 20. WHICH WAS A 100 PERCENT SET-ASIDE FOR SMALL BUSINESS CONCERNS FOR THE PROCUREMENT OF SECURITY GUARD AND RELATED SERVICES ON A 3-YEAR MULTI-YEAR BASIS STARTING JULY 1.

B-167036, FEB. 18, 1970

BID PROTEST--CONFLICT OF INTEREST DECISION DENYING PROTEST AGAINST AWARD OF MULTI-YEAR GUARD SERVICE CONTRACT TO LOW BIDDER ON BASIS THAT THE WIFE OF THE PRESIDENT OF THE FIRM SUBMITTING THE LOW BID IS A GOVERNMENT EMPLOYEE OF THE CONTRACTING AGENCY. THE WIFE OF A LOW BIDDER WHO HAS AN INCHOATE INTEREST IN COMMUNITY PROPERTY BUT WHO DOES NOT HAVE ANY CONTROL OF THE COMPANY AND IS EMPLOYED AS A GOVERNMENT SECRETARY WITHOUT ANY AUTHORITY OR INFLUENCE IN SELECTION OF CONTRACTS MAY NOT HAVE SUCH RELATIONSHIP REGARDED AS "OWNERSHIP" UNDER ASPR 1-302.6 (A). THEREFORE AWARD WILL NOT BE SUBJECT TO OBJECTION.

TO METROPOLITAN SECURITY SERVICES, INC.:

REFERENCE IS MADE TO YOUR LETTER OF MAY 20, 1969, AND TELEGRAMS OF JUNE 3 AND 13, 1969, PROTESTING AGAINST THE AWARD OF A CONTRACT TO INDUSTRIAL SECURITY SYSTEMS, INC. (INDUSTRIAL), UNDER INVITATION FOR BIDS NO. F04693- 69-B-0018 ISSUED BY THE DEPARTMENT OF THE AIR FORCE.

THE SOLICITATION IN QUESTION, WHICH WAS A 100 PERCENT SET-ASIDE FOR SMALL BUSINESS CONCERNS FOR THE PROCUREMENT OF SECURITY GUARD AND RELATED SERVICES ON A 3-YEAR MULTI-YEAR BASIS STARTING JULY 1, 1969, WAS ISSUED BY THE BASE PROCUREMENT BRANCH (SMMMK) HQ. 6592D SUPPORT GROUP (AFSC) ON MAY 2, 1969. BIDS WERE OPENED ON JUNE 2, 1969, AND INDUSTRIAL WAS FOUND TO BE THE LOW BIDDER. YOUR BID WAS SECOND LOW. THE RECORD SHOWS THAT AWARD WAS MADE ON JUNE 30, 1969, TO INDUSTRIAL ON A 3-YEAR MULTI-YEAR BASIS FOR A TOTAL ESTIMATED AMOUNT OF $1,924,710. THE AWARD WAS MADE DURING THE PENDENCY OF YOUR PROTEST, ON THE BASIS OF AN ADMINISTRATIVE DETERMINATION OF URGENCY.

YOUR PROTEST AGAINST THE AWARD OF THIS CONTRACT TO INDUSTRIAL IS BASED PRIMARILY UPON THE FOLLOWING CONTENTIONS:

1. IN THE SUMMER OF 1966 AND THE SPRING OF 1969, INDUSTRIAL WAS FOUND BY THE DEPARTMENT OF LABOR TO BE IN VIOLATION OF THE LABOR STANDARDS PROVISIONS OF THE SERVICE CONTRACT ACT OF 1965, PUB. L. 89 286, 41 U.S.C. 351, ET SEQ; IN THE PERFORMANCE OF CONTRACTS SIMILAR TO THE ONE INVOLVED HERE, AND WAS REQUIRED TO MAKE RESTITUTION TO THE AGGRIEVED WORKERS; IT THEREFORE SHOULD BE DEBARRED FROM RECEIVING GOVERNMENT CONTRACTS.

2. MRS. MARGARET G. WATHEN, A GOVERNMENT EMPLOYEE STATIONED AT THE LOS ANGELES AIR FORCE STATION, WHERE THE CONTRACTING ACTIVITY IS LOCATED, IS AN OFFICER AND DIRECTOR OF INDUSTRIAL, OF WHICH CORPORATION HER HUSBAND IS THE PRESIDENT, THEREBY CREATING AN UNFAIR ADVANTAGE IN THAT CONCERN OVER ALL COMPETITORS, AND MAKING THE CONTRACT AWARD A VIOLATION OF ARMED SERVICES PROCUREMENT REGULATION 1 302.6.

WE SHALL CONSIDER THESE CONTENTIONS IN THAT ORDER.

WITH RESPECT TO YOUR CONTENTION THAT IN 1966 AND 1969 INDUSTRIAL WAS FOUND TO BE IN VIOLATION OF THE LABOR STANDARDS PROVISIONS OF THE SERVICE CONTRACT ACT, THE RECORD AVAILABLE TO US AT THE PRESENT TIME INDICATES THAT IN 1969 INDUSTRIAL WAS IN FACT INVOLVED IN A CLASSIFICATION CONTROVERSY WITH THE ADMINISTRATIVE OFFICE, WHICH WAS RESOLVED BY THE PAYING OF THE AMOUNTS ADMINISTRATIVELY DETERMINED TO BE DUE TO THE INVOLVED WORKERS. THE MATTER WAS CLOSED AND NO VIOLATIONS HAVE BEEN REPORTED TO THIS OFFICE, NOR HAVE ANY VIOLATIONS BEEN REPORTED FOR ANY OTHER YEAR.

SECTION 5 (A) OF THE SERVICE CONTRACT ACT PROVIDES THAT THE COMPTROLLER GENERAL IS DIRECTED TO DISTRIBUTE A LIST TO ALL AGENCIES OF THE GOVERNMENT GIVING THE NAMES OF PERSONS OR FIRMS THAT THE FEDERAL AGENCIES OR THE SECRETARY OF LABOR HAVE FOUND TO HAVE VIOLATED THIS ACT AND THAT UNLESS THE SECRETARY OF LABOR OTHERWISE RECOMMENDS, NO CONTRACT OF THE UNITED STATES SHALL BE AWARDED TO THE PERSONS OR FIRMS APPEARING ON THIS LIST UNTIL THREE YEARS HAVE ELAPSED FROM THE DATE OF PUBLICATION OF THE LIST CONTAINING THE NAMES OF SUCH PERSONS OR FIRMS.

AS WE EXPLAINED IN OUR LETTER TO YOU OF JUNE 16, 1969, THIS OFFICE HAS NO AUTHORITY TO LIST ANY CONTRACTOR AS A VIOLATOR OF THE ACT EXCEPT UPON A FINDING BY THE SECRETARY OF LABOR OR A CONTRACTING AGENCY THAT THE CONTRACTOR HAS VIOLATED THE ACT. UNDER THE PROVISIONS OF 41 U.S.C. 39, APPLICABLE TO PROCEEDINGS UNDER THE SERVICE CONTRACT ACT, SUCH FINDINGS ARE REQUIRED TO BE MADE AFTER NOTICE AND HEARING, AND WE DO NOT CONSIDER VOLUNTARY ADJUSTMENTS PURSUANT TO INFORMAL NEGOTIATION OR DISCUSSION TO BE EQUIVALENT TO SUCH FINDINGS.

WITH RESPECT TO YOUR CONTENTION THAT THE WIFE OF THE PRESIDENT OF INDUSTRIAL IS A GOVERNMENT EMPLOYEE STATIONED AT THE LOS ANGELES AIR FORCE STATION WHERE THE CONTRACTING ACTIVITY IS LOCATED, THE FILE SHOWS THAT INDUSTRIAL IS A CALIFORNIA CORPORATION INCORPORATED ON MAY 6, 1966. MR. WATHEN, IN ADDITION TO BEING PRESIDENT OF INDUSTRIAL, IS ALSO PRESIDENT OF TWO OTHER CORPORATIONS, CALIFORNIA PLANT PROTECTION, INC; AND MANAGEMENT SECURITY SYSTEMS, INC; BOTH OF WHICH LATTER CORPORATIONS ARE LOCATED AT THE SAME ADDRESS.

WE ARE ADVISED THAT MRS. WATHEN IS EMPLOYED AS MANAGEMENT SYSTEMS SPECIALIST FOR THE SECRETARY OF THE AIR FORCE, DIRECTORATE OF SPECIAL PROJECTS, A TENANT ORGANIZATION AT THE LOS ANGELES AIR FORCE STATION. THIS CAPACITY, HER CONTACTS WITH INDUSTRY ARE LIMITED TO THE FINANCIAL ASPECTS OF LARGE SATELLITE CONTRACTS. SHE DOES NOT HAVE ANY AUTHORITY OR INFLUENCE IN THE SELECTION OF ADMINISTRATIVE SERVICE CONTRACTS BY THE 6592D SUPPORT GROUP. SPECIAL PROJECTS IS NOT A PART OF THE PROCURING ACTIVITY; IT IS DIRECTLY ANSWERABLE TO THE SECRETARY OF THE AIR FORCE. ADDITION, WE HAVE BEEN INFORMED THAT MRS. WATHEN HAS NO ACCESS TO PRE- PROCUREMENT INFORMATION OR TO ANY OTHER INFORMATION OF THE 6592D SUPPORT GROUP BECAUSE OF HER POSITION.

MRS. WATHEN IS REPORTED TO BE NOMINALLY THE SECRETARY AND A DIRECTOR OF INDUSTRIAL, BUT ALL OF THE FIFTY SHARES AUTHORIZED FOR INDUSTRIAL ARE REGISTERED IN THE NAME OF THOMAS WATHEN AS OWNER.

THE FACT THAT MR. WATHEN IS THE REGISTERED OWNER OF ALL 50 SHARES OF STOCK AUTHORIZED FOR INDUSTRIAL BECOMES RELEVANT BECAUSE OF THE PROVISIONS OF ARMED SERVICES PROCUREMENT REGULATION (ASPR), 1-302.6(A) WHICH READS AS FOLLOWS:

"CONTRACTS SHALL NOT KNOWINGLY BE ENTERED INTO BETWEEN THE GOVERNMENT AND EMPLOYEES OF THE GOVERNMENT OR BUSINESS ORGANIZATIONS WHICH ARE SUBSTANTIALLY OWNED OR CONTROLLED BY GOVERNMENT EMPLOYEES, EXCEPT FOR THE MOST COMPELLING REASONS, SUCH AS CASES WHERE THE NEEDS OF THE GOVERNMENT CANNOT REASONABLY BE OTHERWISE SUPPLIED."

YOU RAISED THIS POINT IN A PROTESTING TELEGRAM DATED JUNE 23, 1969, TO THE ADMINISTRATIVE OFFICE AND WERE ANSWERED BY THE CONTRACTING OFFICER, IN PART, AS FOLLOWS:

"(C) YOUR POINT NUMBER THREE:

"MR. WATHEN BEING THE SOLE OWNER OF THE CORPORATION, HAS COMPLETE POWER TO CONTROL, DIRECT, DISPOSE OF OR DO WHATEVER HE SO CHOOSES WITH THE CORPORATION. MRS. WATHEN HAS NO VOICE IN THE AFFAIRS OF THE CORPORATION. THE ONLY INTEREST SHE COULD BE CONSIDERED TO HAVE IS AN INCHOATE INTEREST, ARISING OUT OF THE GENERAL COMMUNITY PROPERTY LAWS OF THE STATE OF CALIFORNIA. MR. WATHEN, UNDER CALIFORNIA LAW IS THE MANAGER OF ANY SUCH INCHOATE COMMUNITY PROPERTY INTEREST.

"(D) YOUR POINT NUMBER FOUR:

"IN VIEW OF THE FACTS AS OUTLINED ABOVE, MRS. WATHEN CANNOT BE CONSIDERED AN OWNER OF THE CORPORATION AND, THEREFORE, NO VIOLATION OF ASPR 1-302.6 EXISTS. MR. WATHEN IS PRESIDENT AND TREASURER AND MRS. WATHEN IS SECRETARY."

IN THIS CONNECTION BY LETTER DATED AUGUST 19, 1969, THE CHIEF, PROCUREMENT OPERATIONS DIVISION, DIR/PROCUREMENT POLICY, DCS-S&L, DEPARTMENT OF THE AIR FORCE, ADVISED US AS FOLLOWS:

"4. HOWEVER, WHILE MRS. WATHEN IS A GOVERNMENT EMPLOYEE, WE BELIEVE THAT SHE NEITHER SUBSTANTIALLY OWNS NOR CONTROLS INDUSTRIAL WITHIN THE MEANING OF THE REGULATION. ALL OF THE STOCK OF INDUSTRIAL IS OWNED SOLELY BY HER HUSBAND, WHO IS NOT A GOVERNMENT EMPLOYEE. MRS. WATHEN RETAINS ONLY AN INCHOATE INTEREST IN SUCH PROPERTY BY VIRTUE OF THE COMMUNITY PROPERTY LAWS OF THE STATE OF CALIFORNIA, AND HER HUSBAND RETAINS FULL EXCLUSIVE RIGHT OF MANAGEMENT AND CONTROL. WHILE MRS. WATHEN FORMALLY OCCUPIES THE POSITION OF SECRETARY AND NOT SECRETARY-TREASURER, IN THE CORPORATION, IT APPEARS THAT SHE PERFORMS ONLY MINOR ADMINISTRATIVE FUNCTIONS AND TAKES NO ACTIVE PART IN THE MANAGEMENT OR DIRECTION OF COMPANY AFFAIRS. WE ALSO BELIEVE, IN ACCORDANCE WITH THE CRITERIA EXPRESSED IN COMPTROLLER GENERAL B-153584, MAY 21, 1964, THAT THIS AWARD DOES NOT VIOLATE THE SPIRIT AND POLICY OF THE CONFLICT-OF-INTEREST LAWS AND REGULATIONS, SINCE MRS. WATHEN HAS NO SPECIAL ACCESS TO INFORMATION OR ABILITY TO INFLUENCE ANY DECISION AFFECTING THIS AWARD OR THE CONTRACT WITH INDUSTRIAL BY REASON OF HER EMPLOYMENT WITH THE GOVERNMENT. SHE IS EMPLOYED IN THE SPECIAL PROJECTS OFFICE OF THE SECRETARY OF THE AIR FORCE, A TENANT ORGANIZATION AT LAAFS, WITH NO CONNECTION WITH THE PROCUREMENT OFFICES."

CONTRACTS BETWEEN THE GOVERNMENT AND ITS EMPLOYEES ARE NOT PROHIBITED BY STATUTE EXCEPT WHERE AN EMPLOYEE OF THE GOVERNMENT ACTS AS AN AGENT FOR BOTH THE GOVERNMENT AND THE CONTRACTOR IN THE PARTICULAR TRANSACTION OR WHERE THE SERVICE TO BE RENDERED UNDER THE CONTRACT IS SUCH AS COULD HAVE BEEN REQUIRED OF THE CONTRACTOR IN HIS CAPACITY AS A GOVERNMENT EMPLOYEE. CONFLICT OF INTEREST IN FEDERAL PROCUREMENT, BY HAROLD C. PETROWITZ, 29 LAW & CONTEMPORARY PROBLEMS 196 (1964); P. 1051, VOL. II, YEARBOOK OF PROCUREMENT ARTICLES; 27 COMP. GEN. 735 (1948); B-153584, MAY 21, 1964 (REFERRED TO IN THE ADMINISTRATIVE REPORT). HOWEVER, THIS OFFICE HAS HELD THAT CONTRACTS BETWEEN THE GOVERNMENT AND ITS EMPLOYEES ARE OPEN TO CRITICISM ON THE GROUNDS OF POSSIBLE FAVORTISM OR PREFERENTIAL TREATMENT AND SHOULD NOT BE ENTERED INTO EXCEPT FOR THE MOST COGENT REASONS. COMP. GEN. 690 (1946); B-148092, FEBRUARY 28, 1962; B-124557, OCTOBER 10, 1955. ALSO, WHERE THERE ARE ADMINISTRATIVE REGULATIONS WHICH ARE INTENDED TO PROHIBIT THE MAKING OF CONTRACTS WITH GOVERNMENT EMPLOYEES THIS OFFICE HAS SUSTAINED THE REJECTION OF OTHERWISE PROPER BIDS IN ACCORDANCE THEREWITH. B-159472, AUGUST 10, 1966.

WITH RESPECT TO THE ADMINISTRATIVE POSITION STATED IN THE ABOVE QUOTED LETTER OF AUGUST 19, 1969, CONCERNING THE INTEREST OF MRS. WATHEN IN THE CORPORATION, THERE APPEARS TO BE AUTHORITY, CONTRARY TO THE AIR FORCE VIEW, TO THE EFFECT THAT UNDER CALIFORNIA LAW, A WIFE HAS A PRESENT, EXISTING AND VESTED INTEREST IN COMMUNITY PROPERTY. BERRY V. BERRY, 294 P. 2D 757 (1956). SUCH INTEREST, HOWEVER, IS NOT SUBJECT TO ATTACHMENT OR SALE UNDER A WRIT OF EXECUTION, DOES NOT VEST IN THE TRUSTEE IN THE EVENT OF THE WIFE'S BANKRUPTCY, AND MAY NOT BE DISPOSED OF BY THE WIFE EXCEPT TO HER HUSBAND OR BY WILL UPON HER DEATH. SMEDBERG V. BEVILOCKWAY, 46 P. 2D 820 (1935). IN ADDITION, THE HUSBAND HAS FULL AND COMPLETE MANAGEMENT AND CONTROL OF THE COMMUNITY PROPERTY. CALIFORNIA CIVIL CODE, SECTION 172.

WHILE THE WORD "OWNERSHIP" MAY BE USED WITH SEVERAL MEANINGS, DEPENDING UPON THE CONTEXT, ONE OF THE ACCEPTED TESTS OF "OWNERSHIP" IN ITS CUSTOMARY SENSE IS THE RIGHT TO DISPOSE OF, SELL, CONVEY, ASSIGN OR GIVE AWAY. SEE STANDARD OIL CO. OF NEW JERSEY V. POWELL PAVING AND CONTRACTING COMPANY, 142 S.E. 612 (S.C. 1928); HARDINGS V. EMPIRE ZINC CO; 148 P. 306 (ARIZ. 1915). SINCE MRS. WATHEN'S INTEREST IN HER HUSBAND'S CORPORATION IS CLEARLY LACKING IN THAT IMPORTANT ELEMENT, WE AGREE WITH THE AIR FORCE CONCLUSION THAT THE CORPORATION IS NOT "SUBSTANTIALLY OWNED" BY MRS. WATHEN, AND SINCE IT SEEMS CLEAR THAT SHE DOES NOT SUBSTANTIALLY CONTROL THE CORPORATION, AWARD OF THE CONTRACT WAS NOT IN VIOLATION OF ASPR 1- 302.6 (A).