B-167353, DECEMBER 4, 1969 49 COMP. GEN. 369

B-167353: Dec 4, 1969

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AWARD PRIOR TO RESOLUTION OF SIZE PROTEST THE AWARD OF A REFUSE COLLECTION CONTRACTOR UNDER A SMALL BUSINESS SET- ASIDE FOR URGENTLY NEEDED SERVICES PRIOR TO THE RESOLUTION OF A SIZE PROTEST BY THE SMALL BUSINESS ADMINISTRATION (SBA) WITHIN THE 10 WORKING DAYS AFTER RECEIPT OF THE PROTEST THAT IS PRESCRIBED BY PARAGRAPH 1- 703(B)(1) OF THE ARMED SERVICES PROCUREMENT REGULATION DOES NOT AFFECT THE VALIDITY OF THE CONTRACT. THE CONTRACTING OFFICER UNDER THE REGULATION UPON EXPIRATION OF THE 10 WORKING DAYS WAS AUTHORIZED TO PRESUME THE QUESTIONED BIDDER TO BE A SMALL BUSINESS CONCERN. EVEN THOUGH ULTIMATELY IT IS DETERMINED THE CONTRACTOR IS NOT A SMALL BUSINESS CONCERN. THE CONTRACT AWARDED IN GOOD FAITH IS NOT VOID AB INITIO BUT VOIDABLE AT THE GOVERNMENT'S OPTION.

B-167353, DECEMBER 4, 1969 49 COMP. GEN. 369

CONTRACTS -- AWARDS -- SMALL BUSINESS CONCERNS -- AWARD PRIOR TO RESOLUTION OF SIZE PROTEST THE AWARD OF A REFUSE COLLECTION CONTRACTOR UNDER A SMALL BUSINESS SET- ASIDE FOR URGENTLY NEEDED SERVICES PRIOR TO THE RESOLUTION OF A SIZE PROTEST BY THE SMALL BUSINESS ADMINISTRATION (SBA) WITHIN THE 10 WORKING DAYS AFTER RECEIPT OF THE PROTEST THAT IS PRESCRIBED BY PARAGRAPH 1- 703(B)(1) OF THE ARMED SERVICES PROCUREMENT REGULATION DOES NOT AFFECT THE VALIDITY OF THE CONTRACT. THE CONTRACTING OFFICER UNDER THE REGULATION UPON EXPIRATION OF THE 10 WORKING DAYS WAS AUTHORIZED TO PRESUME THE QUESTIONED BIDDER TO BE A SMALL BUSINESS CONCERN, ELIGIBLE FOR A CONTRACT AWARDED, HAVING COMPLIED WITH THE REQUIREMENTS TO ASCERTAIN WHEN TO EXPECT A SIZE DECISION FROM SBA, AND TO DETERMINE THAT A FURTHER DELAY IN AWARDING THE CONTRACT WOULD BE DISADVANTAGEOUS TO THE GOVERNMENT. EVEN THOUGH ULTIMATELY IT IS DETERMINED THE CONTRACTOR IS NOT A SMALL BUSINESS CONCERN, THE CONTRACT AWARDED IN GOOD FAITH IS NOT VOID AB INITIO BUT VOIDABLE AT THE GOVERNMENT'S OPTION. CONTRACTS -- AWARDS -- SMALL BUSINESS CONCERNS -- ERRONEOUS AWARD -- AB INITIO V VOIDABLE A CONTRACT AWARDED ON THE BASIS OF A BIDDER'S GOOD FAITH SELF CERTIFICATION THAT IT IS A SMALL BUSINESS CONCERN, WHICH STATUS IS SUBSEQUENTLY DETERMINED ERRONEOUS, IS NOT VOID AB INITIO, BUT IS VOIDABLE AT THE OPTION OF THE GOVERNMENT.

TO SADUR, PELLAND & BRAUDE, DECEMBER 4, 1969:

FURTHER REFERENCE IS MADE TO YOUR PROTEST ON BEHALF OF JOHNSON & SPEAKE, INCORPORATED, AGAINST THE AWARD OF A CONTRACT TO CAPITOL TRASH REMOVING COMPANY, INCORPORATED, FOR COLLECTION AND DISPOSAL OF REFUSE AT ANDREWS AIR FORCE BASE FOR THE PERIOD OF 1 YEAR COMMENCING ON JULY 1, 1969. THE CONTRACT WAS AWARDED PURSUANT TO SOLICITATION NO. F49642 69-B-0781, A TOTAL SMALL BUSINESS SET-ASIDE. YOUR PRIMARY CONTENTION IS THAT CAPITOL WAS NOT A SMALL BUSINESS CONCERN AT THE TIME OF BIDDING AND AWARD AND, THEREFORE, THE CONTRACT SHOULD BE CANCELED.

THE SOLICITATION WAS ISSUED ON MAY 9, 1969, AFTER THE SMALL BUSINESS ADMINISTRATION (SBA) HAD ADVISED THE PROCURING ACTIVITY THAT THERE WAS A SUFFICIENT NUMBER OF SMALL BUSINESS CONCERNS IN THE AREA TO GENERATE COMPETITION. SBA FURNISHED A LIST OF SEVEN SMALL BUSINESS FIRMS, INCLUDING YOUR CLIENT AND CAPITOL. THE FOLLOWING FIVE BIDS WERE RECEIVED AND OPENED ON JUNE 3, 1969:

CAPITOL $150,596

SHIPSHAPE 235,074

JOHNSON & SPEAKE 273,554

BALDWIN 289,427

S & M 319,686 SINCE CAPITOL WAS THE APPARENT LOW BIDDER, THE CONTRACTING OFFICER REQUESTED A PREAWARD SURVEY WITH "SPECIAL EMPHASIS *** ON *** WHERE COMPANY IS INCORPORATED AND WHETHER THE COMPANY HAS A PARENT COMPANY AFFILIATION 'ASCERTAIN WHETHER COMPANY IS SMALL BUSINESS.'" THE SURVEY WAS CONDUCTED BY THE BALTIMORE DEFENSE CONTRACT ADMINISTRATION SERVICES DISTRICT AND ITS REPORT DATED JUNE 19, 1969, RECOMMENDED AWARD TO CAPITOL. THE REPORT STATED THAT CAPITOL HAD NO AFFILIATES AND THAT BASED ON A DUN & BRADSTREET REPORT DATED MARCH 28, 1969, ANNUAL SALES WERE WELL BELOW $1 MILLION DURING THE PRECEDING 3-YEAR PERIOD, THE SMALL BUSINESS LIMITATION FOR SERVICE INDUSTRIES.

ON JUNE 9, 1969, THE CONTRACTING OFFICER RECEIVED THE JOHNSON & SPEAKE PROTEST AS TO CAPITOL'S SMALL BUSINESS STATUS AND FORWARDED IT TO SBA ON THE SAME DAY. A COPY OF JOHNSON & SPEAKE'S LETTER WAS ALSO SENT TO AND RECEIVED BY SBA, APPARENTLY ON JUNE 9, 1969. AFTER CONSULTATIONS WITH SBA, THE CONTRACTING OFFICER CONCLUDED THAT IMMEDIATE AWARD WOULD BE NECESSARY IN ORDER FOR THE CONTRACTOR TO COMMENCE PERFORMANCE ON JULY 1 AS CALLED FOR IN THE SOLICITATION. THEREFORE, AWARD WAS MADE TO CAPITOL ON JUNE 23, 1969. THE APPROPRIATE SBA REGIONAL OFFICE RULED ON JULY 11, 1969, THAT CAPITOL WAS NOT SMALL BUSINESS. THIS DECISION WAS APPEALED AND ON OCTOBER 28, 1969, THE SBA SIZE APPEALS BOARD DENIED THE APPEAL.

IN ADDITION TO YOUR CONTENTIONS WITH RESPECT TO CAPITOL'S ELIGIBILITY AS A SMALL BUSINESS CONCERN, YOU ASSERT THAT THE CONTRACTING OFFICER VIOLATED THE FOLLOWING PROVISIONS OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) CONCERNING SUSPENSION OF THE PROCUREMENT ACTION WHERE A FIRM'S STATUS HAS BEEN QUESTIONED WITHIN 5 WORKING DAYS AFTER BID OPENING IN ACCORDANCE WITH ASPR 1-703(B)(1) AND, THEREFORE, THE AWARD IS VOID AB INITIO: ASPR 1-703(B)(3)(I):

(I) IF THE SBA REGIONAL DIRECTOR'S DETERMINATION IS NOT RECEIVED BY THE CONTRACTING OFFICER 10 WORKING DAYS AFTER SBA'S INITIAL RECEIPT OF A PROTEST OR NOTICE QUESTIONING THE SMALL BUSINESS STATUS OF A BIDDER OR OFFEROR, IT SHALL BE PRESUMED THAT THE QUESTIONED BIDDER OR OFFERER IS A SMALL BUSINESS CONCERN. THIS PRESUMPTION WILL NOT BE USED AS A BASIS FOR MAKING AN AWARD TO THE QUESTIONED BIDDER OR OFFEROR WITHOUT FIRST ASCERTAINING WHEN A SIZE DETERMINATION CAN BE EXPECTED FROM SBA, AND WHERE PRACTICABLE, WAITING FOR SUCH DETERMINATION, UNLESS FURTHER DELAY IN AWARD WOULD BE DISADVANTAGEOUS TO THE GOVERNMENT.

(IV) UNTIL RECEIPT OF THE SBA DETERMINATION OF THE SIZE STATUS, OR EXPIRATION OF THE TEN DAY PERIOD (30 DAYS IN CASE OF AN APPEAL TO THE CHAIRMAN, SIZE APPEALS BOARD), WHICHEVER OCCURS FIRST, PROCUREMENT ACTION SHALL BE SUSPENDED; HOWEVER, THIS SUSPENSION SHALL NOT APPLY TO ANY URGENT PROCUREMENT ACTION WHICH THE CONTRACTING OFFICER DETERMINES IN WRITING MUST BE AWARDED WITHOUT DELAY TO PROTECT THE PUBLIC INTEREST. THE CONTRACTING OFFICER'S DETERMINATION SHALL BE PLACED IN THE CONTRACT FILE.

FIRST, YOU CONTEND THAT AWARD WAS MADE BEFORE THE SBA SIZE DETERMINATION AND BEFORE THE EXPIRATION OF 10 WORKING DAYS WITHOUT A PROPER FINDING THAT IT WAS AN "URGENT PROCUREMENT" AND AWARD HAD TO BE MADE WITHOUT DELAY TO PROTECT THE "PUBLIC INTEREST," CONTRARY TO SUBPARAGRAPH (IV). YOU CONTEND THAT THE 10 DAYS EXPIRED ON JUNE 25, 1969. IN THE ALTERNATIVE, YOU CONTEND THAT IF AWARD IS CONSIDERED TO HAVE BEEN MADE AFTER THE EXPIRATION OF 10 WORKING DAYS, IT WAS CONTRARY TO SUBPARAGRAPH (I) ABOVE BECAUSE THE CONTRACTING OFFICER DID NOT FIRST ASCERTAIN WHEN SBA COULD BE EXPECTED TO MAKE ITS DETERMINATION AND THERE WAS NO PROPER FINDING THAT FURTHER DELAY WOULD BE "DISADVANTAGEOUS" TO THE GOVERNMENT. YOU CONTEND THAT AWARD WAS NOT JUSTIFIED AS AN "URGENT PROCUREMENT" OR BECAUSE FURTHER DELAY WOULD HAVE BEEN "DISADVANTAGEOUS" TO THE GOVERNMENT BECAUSE THE CONTRACTING OFFICER SHOULD HAVE NEGOTIATED A MONTH'S EXTENSION OF JOHNSON & SPEAKE'S CURRENT CONTRACT. IN ADDITION, YOU TAKE THE POSITION THAT PRESERVATION OF THE INTEGRITY OF THE BIDDING SYSTEM AND THE PRINCIPLES AND POLICIES OF THE SMALL BUSINESS ACT OUTWEIGH ANY SAVINGS IN MONEY THAT WOULD HAVE BEEN LOST BY A 1-MONTH EXTENSION OF JOHNSON & SPEAKE'S CONTRACT.

THE RECORD SHOWS THAT THE CONTRACTING OFFICER CONTACTED SBA ON JUNE 10 BY TELEPHONE AND LEARNED THAT HIS LETTER HAS BEEN RECEIVED ON THAT DAY. HIS LETTER TO SBA INCLUDED A STATEMENT TO THE EFFECT THAT UNLESS AWARD WAS MADE BY JUNE 16 "THE POTENTIAL HAZARD TO THE MISSION OF ANDREWS AFB WILL BE MATERIALLY INCREASED," AND REQUESTED IMMEDIATE ATTENTION TO THE MATTER. HE AGAIN DISCUSSED THE PROTEST WITH SBA ON JUNE 18 AND 19 AND LEARNED THAT JUNE 26, 1969, WAS THE EARLIEST DATE HE COULD EXPECT THEIR DECISION. HE CALCULATED THE 10-DAY PERIOD AS EXPIRING ON JUNE 24. JUNE 20 HE RECEIVED THE AFFIRMATIVE PREAWARD SURVEY REPORT, WHICH INCLUDED NO INFORMATION INDICATING CAPITOL WAS OTHER THAN SMALL BUSINESS. ON THE SAME DATE THE CONTRACTING OFFICER ISSUED A DETERMINATION AND FINDINGS, PURSUANT TO ASPR 2-407.9(B)(3), THAT AWARD SHOULD BE MADE PRIOR TO RESOLUTION OF JOHNSON & SPEAKE'S PROTEST. THIS DECISION WAS COORDINATED WITH AND APPROVED BY HIGHER AUTHORITY. HIS DECISION WAS BASED UPON THE FACT THAT THE CURRENT CONTRACT EXPIRED ON JUNE 30, 1969, AND CONTINUITY OF SERVICE WAS "URGENTLY REQUIRED TO PREVENT AND PRECLUDE POSSIBLE DANGER TO THE HEALTH AND WELFARE" OF PERSONNEL AND THE PUBLIC; THAT FURTHER DELAY WOULD PREVENT THE CONTRACTOR FROM HAVING THE LARGE NUMBER OF DISPOSAL CONTAINERS IN PLACE ON TIME AND THEREBY DELAY PERFORMANCE; THAT AWARD TO CAPITOL WOULD BE MONETARILY ADVANTAGEOUS BECAUSE AN EXTENSION OF THE CURRENT CONTRACT WOULD COST MORE; AND THE CAPITOL HAD CERTIFIED ITSELF TO BE SMALL BUSINESS AND HAD RECEIVED A FAVORABLE PREAWARD SURVEY RECOMMENDATION.

IT IS OUR VIEW THAT ALTHOUGH THERE APPEARS TO HAVE BEEN A TECHNICAL VIOLATION OF THE "10-DAY PERIOD" AS YOU CONTEND, WE DO NOT BELIEVE THIS AFFECTS THE VALIDITY OF THE CONTRACT. ASSUMING, ARGUENDO, THAT AWARD WAS MADE BEFORE EXPIRATION OF 10 DAYS, IT IS CLEAR THAT WAITING THE FULL 10 DAYS WOULD HAVE SERVED NO USEFUL PURPOSE SINCE SBA'S DECISION WAS NOT MAD UNTIL JULY 11, 1969, AT LEAST 22 WORKING DAYS AFTER IT WAS NOTIFIED OF THE PROTEST. IT SHOULD ALSO BE NOTED THAT THE CONTRACTING OFFICER KNEW AT THE TIME HE MADE THE AWARD THAT HE COULD NOT EXPECT A DECISION WITHIN THE SPECIFIED TIME. UNDER THE PROVISIONS OF ASPR 1 703(B)(3)(I) THE CONTRACTING OFFICER IS AUTHORIZED TO PRESUME THE SMALL BUSINESS STATUS OF A SELF-CERTIFIED BIDDER AFTER EXPIRATION OF 10 DAYS ONCE HE HAS ASCERTAINED WHEN A DETERMINATION CAN BE EXPECTED FROM SBA AND WHERE FURTHER DELAY WILL BE "DISADVANTAGEOUS" TO THE GOVERNMENT. AS NOTED ABOVE, THE CONTRACTING OFFICER DID ASCERTAIN WHEN SBA'S DETERMINATION COULD BE EXPECTED AND DETERMINED THAT DELAY IN AWARD WOULD BE TO THE GOVERNMENT'S DISADVANTAGE. WITH REGARD TO THE LATTER POINT, THE CONTRACTING OFFICER HAS STATED SEVERAL REASONS WHICH APPEAR TO SUPPORT HIS DETERMINATION THAT FURTHER DELAY WOULD BE "DISADVANTAGEOUS." IN THESE CIRCUMSTANCES, IT IS OUR OPINION THAT AWARD WAS PROPER UNDER THE CITED REGULATION. SEE MID-WEST CONSTRUCTION, LTD. V UNITED STATES, 181 CT. C1. 774 (1967). SINCE WE HAVE CONCLUDED THAT AWARD WAS PROPER UNDER ASPR 1- 703(B)(3)(I), THERE IS NO NEED TO DETERMINE WHETHER AWARD WOULD HAVE BEEN AUTHORIZED UNDER ASPR 1-703(B)(3)(IV) AS AN "URGENT PROCUREMENT."

YOU ALSO CONTEND THAT THE AWARD WAS MADE CONTRARY TO THE REQUIREMENTS OF ASPR 2-407.9(B)(3); THAT AWARD SHALL BE WITHHELD UNTIL THE PROTEST IS RESOLVED UNLESS THE CONTRACTING OFFICER DETERMINES THE ITEMS ARE URGENTLY REQUIRED, PERFORMANCE WILL BE UNDULY DELAYED, OR A PROMPT AWARD WILL BE DISADVANTAGEOUS TO THE GOVERNMENT; AND THAT NOTICE OF INTENTION TO PROCEED WITH AWARD BE GIVEN TO THE PROTESTOR AND OTHERS CONCERNED. AS NOTED ABOVE, THE CONTRACTING OFFICER MADE A DETERMINATION THAT PERFORMANCE WOULD BE UNDULY DELAYED UNLESS AWARD WAS MADE PROMPTLY AND THAT AWARD WOULD BE MONETARILY ADVANTAGEOUS. THIS DETERMINATION WAS APPROVED BY THE DIRECTOR OF PROCUREMENT, HEADQUARTERS, AND AIR FORCE LEGAL COUNSEL. ALTHOUGH THERE WAS A FAILURE TO COMPLY WITH THE NOTICE REQUIREMENT, WE DO NOT VIEW THIS AS INVALIDATING THE AWARD.

YOUR CONTENTION THAT CAPITOL WAS NOT A SMALL BUSINESS CONCERN AT THE TIME OF BIDDING AND AWARD IS BASED ON THE TWO-FOLD ARGUMENT THAT CAPITOL (1) IS AN AFFILIATE OF THE "EMPIRE" OF THREE BROTHERS, WILLIAM, CHARLES AND ROBERT COHEN, AND (2) IS AFFILIATED WITH SHAYNE BROTHERS, A LARGE BUSINESS, FOR THE PURPOSE OF SECURING THE CONTRACT FOR THE LATTER'S BENEFIT. SINCE THESE CONTENTIONS WERE CONSIDERED AND DETERMINED BY THE SIZE APPEALS BOARD OF THE SMALL BUSINESS ADMINISTRATION, WHICH IS VESTED BY LAW (15 U.S.C. 637(B)(6)) WITH THE AUTHORITY TO MAKE SUCH DETERMINATIONS, WE QUOTE FROM ITS DECISION OF OCTOBER 28, 1969:

B. A CONCERN IS SMALL FOR THE PURPOSE OF THIS PROCUREMENT IF, TOGETHER WITH ITS AFFILIATES, ITS AVERAGE ANNUAL RECEIPTS FOR THE PAST THREE FISCAL YEARS DO NOT EXCEED $1 MILLION.

C. SECTION 121.3-2(A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATIONS STATES:

"CONCERNS ARE AFFILIATES OF EACH OTHER WHEN EITHER DIRECTLY OR INDIRECTLY (1) ONE CONCERN ... CONTROLS OR HAS THE POWER TO CONTROL THE OTHER OR (2) A THIRD PARTY OR PARTIES ... CONTROL OR HAS THE POWER TO CONTROL BOTH. DETERMINING WHETHER CONCERNS ARE INDEPENDENTLY OWNED AND OPERATED AND WHETHER OR NOT AFFILIATION EXISTS, CONSIDERATION SHALL BE GIVEN ALL APPROPRIATE FACTORS, INCLUDING COMMON OWNERSHIP, COMMON MANAGEMENT AND CONTRACTUAL RELATIONSHIPS ... "

D. THE RECORD DISCLOSES THAT THE APPELLANT IS SUBCONTRACTING PART OF THE WORK TO DIXIE TRASH COMPANY AND IS RENTING EQUIPMENT FROM SHAYNE BROS., INC. THERE IS NO EVIDENCE THAT SHAYNE BROS., INC., IS CONTROLLING, OR HAS THE POWER TO CONTROL THE APPALLANT BY RENTING ITS EQUIPMENT. THEREFORE, THE BOARD FINDS THAT THE APPELLANT IS NOT AFFILIATED WITH SHAYNE BROS., INC.

E. THE RECORD FURTHER DISCLOSES THAT, AT THE TIME OF BID OPENING AND AWARD, ALL OF THE STOCK OF APPELLANT WAS OWNED BY ISADORE KATZEN AND ROBERT COHEN, THE ASSISTANT TREASURER AND ASSISTANT SECRETARY OF THE CORPORATION RESPECTIVELY. CHARLES COHEN WAS PRESIDENT, SECRETARY AND TREASURER, AND WILLIAM COHEN, VICE-PRESIDENT. UNDER THE BY-LAWS, CHARLES COHEN, AS PRESIDENT, HAD THE DUTY AND AUTHORITY TO MANAGE THE CORPORATE AFFAIRS. THE ONLY OFFICES MENTIONED IN THE BY-LAWS ARE THOSE OF PRESIDENT, VICE-PRESIDENT, SECRETARY AND TREASURER, POSITIONS WHICH WERE HELD BY CHARLES COHEN AND WILLIAM COHEN, THROUGH ELECTION BY THE BOARD OF DIRECTORS. THE BOARD FINDS, THEREFORE, THAT CHARLES COHEN HAD THE POWER TO CONTROL THE APPELLANT BOTH AT THE TIME OF BID OPENING AND AWARD. CHARLES COHEN ALSO CONTROLLED OR HAD THE POWER TO CONTROL CERTAIN OTHER CONCERNS WHICH ARE CONSIDERED TO BE AFFILIATED WITH THE APPELLANT. SINCE ALL OF THE CONCERNS CONTROLLED BY CHARLES COHEN HAD COMBINED AVERAGE ANNUAL RECEIPTS FOR THE PAST THREE FISCAL YEARS IN EXCESS OF $1 MILLION, THE APPELLANT, CAPITOL TRASH REMOVAL COMPANY, INC., IS NOT A SMALL BUSINESS CONCERN FOR THIS PROCUREMENT.

IN ADDITION TO THE ABOVE FINDING CONFIRMING YOUR POSITION AS TO CAPITOL'S SIZE STATUS, YOU CONTEND THAT ITS SMALL BUSINESS SELF CERTIFICATION WAS NOT IN GOOD FAITH AND, THEREFORE, THE CONTRACT IS VOID AB INITIO. SUPPORT OF YOUR CONTENTION THAT OTHER THAN A GOOD FAITH SELF-CERTIFICATION RENDERS THE CONTRACT VOID AB INITIO, YOU CITE SEVERAL DECISIONS OF OUR OFFICE, INCLUDING 34 COMP. GEN. 115 (1954); 41 ID. 47 (1961); ID. 252 (1961); B-157700 AND B-157292, BOTH DECIDED NOVEMBER 15, 1965; B-157921, NOVEMBER 29, 1965. YOU CONTEND THAT THE CERTIFICATION WAS IN BAD FAITH BECAUSE CAPITOL KNEW, OR IN THE EXERCISE OF REASONABLE DILIGENCE SHOULD HAVE KNOWN, THAT ITS AFFILIATION WITH OTHER COHEN CONTROLLED ENTERPRISES AND ITS "ARRANGEMENT," WHETHER EXPRESS OR IMPLIED, WITH SHAYNE BROTHERS PRECLUDED IT FROM QUALIFYING AS A SMALL BUSINESS CONCERN. YOU POINT OUT THAT THE SELF-CERTIFICATION PROVISION OF THE INVITATION INSTRUCTED BIDDERS TO REFER TO PARAGRAPH 14 OF STANDARD FORM 33A, WHICH MAKES IT CLEAR THAT AFFILIATION MUST BE CONSIDERED IN DETERMINING WHETHER A FIRM IS SMALL BUSINESS AND REFERS TO THE SBA REGULATIONS CONCERNING AFFILIATES AND, AS NOTED ABOVE, SBA HAS DETERMINED THAT CAPITOL WAS AFFILIATED WITH OTHER COHEN INTERESTS WITHIN THE MEANING OF SUCH TERM AS USED IN ITS REGULATIONS. IN VIEW OF THESE PROVISIONS, YOU ARGUE THAT CAPITOL MUST BE HELD TO HAVE BEEN ON NOTICE THAT IT HAD TO CONSIDER ITS RELATIONSHIP TO THE CHARLES COHEN ENTERPRISES AND ITS JOINT VENTURE ARRANGEMENT WITH SHAYNE BROTHERS. IN THESE CIRCUMSTANCES, YOU CONTEND THAT A REASONABLE AND PRUDENT BIDDER WOULD HAVE BEEN SUSPICIOUS OF ITS STATUS AND REQUESTED A CERTIFICATE FROM SBA PRIOR TO SUBMITTING A BID. THE WILLFUL OR NEGLIGENT FAILURE OF CAPITOL TO INQUIRE OF SBA AS TO ITS STATUS CONSTITUTES, IN YOUR OPINION, A FAILURE TO EXERCISE GOOD FAITH. SUPPORT OF THE "RULE URGED HERE, THAT A GOOD FAITH CERTIFICATION REQUIRES A FREEDOM OF KNOWLEDGE OF CIRCUMSTANCES WHICH OUGHT TO PUT A PRUDENT BIDDER UPON INQUIRY TO ASCERTAIN ITS TRUE STATUS FROM THE SMALL BUSINESS ADMINISTRATION, AND A WILLFUL OR NEGLIGENT FAILURE TO MAKE SUCH INQUIRY CONSTITUTES A LACK OF GOOD FAITH," YOU HAVE CITED NUMEROUS COURT CASES AND SEVERAL DECISIONS OF OUR OFFICE. IN ADDITION, YOU POINT TO THE FACT THAT CAPITOL MADE A CHANGE IN ITS OFFICERS ON JULY 1, 1969, AS INDICATING KNOWLEDGE AT THE TIME OF CERTIFICATION THAT IT DID NOT QUALIFY AS SMALL BUSINESS.

CAPITOL'S ATTORNEY HAS SUBMITTED HIS VIEWS ON YOUR CONTENTIONS CONCERNING HIS CLIENT'S SMALL BUSINESS CERTIFICATION. HE ARGUES THAT THE CERTIFICATION WAS MADE IN GOOD FAITH BY ISADORE KATZEN, ASSISTANT TREASURER AND 50-PERCENT STOCKHOLDER, IN THE HONEST BELIEF THAT THE CORPORATION WAS A SMALL BUSINESS. IT IS HIS POSITION THAT ALTHOUGH THE SIZE APPEALS BOARD FOUND CAPITOL AFFILIATED WITH OTHER INTERESTS OF CHARLES COHEN WITHIN THE MEANING OF ITS REGULATIONS, THE FACTS OF THE SITUATION SUPPORT THE CONCLUSION THAT THE CERTIFICATION WAS IN GOOD FAITH. IN SUPPORT OF THIS ARGUMENT HE POINTS TO THE EVIDENCE BEFORE THE SIZE APPEALS BOARD THAT ON JANUARY 21, 1964, CHARLES COHEN WAS ELECTED PRESIDENT AND SECRETARY-TREASURER; WILLIAM COHEN, VICE PRESIDENT; ISADORE KATZEN, ASSISTANT TREASURER, AND ROBERT COHEN, ASSISTANT SECRETARY; THAT IN 1965 ROBERT COHEN AND ISADORE KATZEN BECAME SOLE SHAREHOLDERS; THAT THE OFFICERS REMAINED THE SAME BECAUSE CHARLES AND WILLIAM COHEN WERE FOUNDERS OF CAPITOL AND THE NEW CO OWNERS WANTED THE BENEFIT OF THEIR REPUTATION IN THE TRADE; THAT DURING THE ENSUING 4 YEARS ROBERT COHEN AND ISADORE KATZEN HAD FULL CONTROL IN RUNNING THE BUSINESS; THAT CHARLES AND WILLIAM COHEN DID NOT ACT AS OFFICERS OF THE CORPORATION OR VISIT THE CORPORATE OFFICES MORE THAN ONCE OR TWICE DURING THE PERIOD; THAT THE ONLY OTHER BUSINESS INTERESTS OF ROBERT COHEN AND ISADORE KATZEN ARE SMALL REAL ESTATE INVESTMENTS WITH ANNUAL GROSS INCOME OF LESS THAN $10,000; AND THAT CAPITOL'S ANNUAL SALES DURING THE MOST RECENT 3-YEAR PERIOD AVERAGED $431,110. YOUR CONTENTION CONCERNING AN ARRANGEMENT WITH SHAYNE BROTHERS IS DENIED AND IT IS POINTED OUT THAT NEITHER SBA NOR THE PREAWARD SURVEY TEAM FOUND ANY EVIDENCE OF SUCH AN AGREEMENT. IN ADDITION, IT IS POINTED OUT THAT AFTER MAKING THE ALLEGATION THAT SHAYNE BROTHERS WOULD "PERFORM ALL OF THE WORK NECESSARY AND FURNISH ALL LABOR, MATERIAL, TRUCKS AND EQUIPMENT REQUIRED," JOHNSON & SPEAKE SEEMINGLY REFUTED IT BY PROTESTING TO THE CONTRACTING OFFICER THAT IT HAD LEARNED FROM CAPITOL THAT IT PLANNED TO PURCHASE CANADIAN-MADE EQUIPMENT. IT IS ARGUED THAT IN THESE CIRCUMSTANCES THERE WAS NO REASON FOR THE CO OWNERS OF CAPITOL TO SUSPECT THAT ITS SIZE STATUS WOULD BE QUESTIONABLE AND, THEREFORE, THE CERTIFICATION WAS IN GOOD FAITH.

IT HAS LONG BEEN THE POSITION OF OUR OFFICE THAT A CONTRACT AWARDED IN GOOD FAITH ON THE BASIS OF A BIDDER'S CERTIFICATION THAT IT IS A SMALL BUSINESS CONCERN, WHICH STATUS IS SUBSEQUENTLY DETERMINED ERRONEOUS, IS NOT VOID AB INITIO BUT IS VOIDABLE ONLY AT THE OPTION OF THE GOVERNMENT. 41 COMP. GEN. 252 (1961); B-137689, JANUARY 21, 1959. SEE, ALSO, OTIS STEEL PRODUCTS CORPORATION V UNITED STATES, 161 CT. CL. 694, 316 F. 2D 937 (1963). HOWEVER, YOU CONTEND THAT HERE THE CERTIFICATION WAS IN BAD FAITH AND THAT UNDER THE DECISIONS OF OUR OFFICE THE CONTRACT IS THEREFORE VOID AB INITIO. ALTHOUGH THERE IS INSUFFICIENT EVIDENCE TO SUPPORT A FINDING OF BAD FAITH, WE BELIEVE A WORD SHOULD BE SAID CONCERNING THE POSITION OF OUR OFFICE WHERE WE HAVE FOUND THERE WAS A BAD FAITH CERTIFICATION. OUR REVIEW OF THE DECISIONS YOU HAVE CITED IN SUPPORT OF THIS PROPOSITION FAILS TO REVEAL ANY DECISION WHERE WE HAVE HELD A CONTRACT VOID AB INITIO AS OPPOSED TO VOIDABLE AT THE GOVERNMENT'S OPTION, WITH THE POSSIBLE EXCEPTION OF 34 COMP. GEN. 115 (1954), WHERE THE LANGUAGE USED MAY BE CONSTRUED AS HAVING SUCH MEANING. HOWEVER, IN B-137689, MAY 15, 1961, WE CLARIFIED OUR POSITION WITH RESPECT TO THE USE OF THAT LANGUAGE AS FOLLOWS:

WHILE THE LANGUAGE EMPLOYED IN REACHING THE CONCLUSIONS INDICATED IN THE ABOVE DECISIONS MAY DIFFER, WE THINK THE LEGAL RESULT IS THE SAME, FOR AS POINTED OUT BY THE SUPREME COURT IN UNITED STATES V N.Y. PORTO RICO S.S. CO., 239 U.S. 88, 93, EVEN WHERE A STATUTE SPECIFICALLY DECLARES A TRANSACTION VOID, "THE PARTY FOR WHOSE PROTECTION THE REQUIREMENT IS MADE OFTEN MAY WAIVE IT, VOID BEING HELD TO MEAN ONLY VOIDABLE AT THE PARTY'S CHOICE." SEE ALSO ADELHARDT CONSTRUCTION CO. V UNITED STATES, 107 F. SUPP. 845.

AS WAS STATED IN A MORE RECENT DECISION, B-166445, AUGUST 25, 1969--

*** IT HAS BEEN AND REMAINS OUR POSITION THAT, IF A CONTRACT HAS BEEN AWARDED ON A SMALL BUSINESS SET-ASIDE PROCUREMENT TO A CONCERN WHICH, SUBSEQUENT TO AWARD, HAS BEEN DETERMINED BY THE SMALL BUSINESS ADMINISTRATION AS ONE NOT QUALIFYING AS AN ELIGIBLE SMALL BUSINESS CONTRACTOR ON THE CONTRACT AWARD DATE, THE CONTRACT IS NOT VOID AB INITIO BUT IS VOIDABLE, DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF THE CASE, ONLY AT THE OPTION OF THE GOVERNMENT. SEE 41 COMP. GEN. 252 AND OUR DECISION B-164100, JULY 8, 1968. SEE, ALSO, OTIS STEEL PRODUCTS CORPORATION V UNITED STATES, 316 F. 2D 937, WHEREIN THE COURT OF CLAIMS HELD THAT THE PLAINTIFF COULD NOT BE RELIEVED FROM ITS OBLIGATIONS UNDER THE CONTRACT INVOLVED BY PLEADING THAT IT WAS NOT A SMALL BUSINESS CONCERN AT THE TIME THE CONTRACT WAS AWARDED. SEE, ALSO, B-163128, APRIL 24, 1968; B-166065, APRIL 14, 1969; AND B-167613, OCTOBER 22, 1969.

AS STATED ABOVE, WE DO NOT BELIEVE THERE IS SUFFICIENT EVIDENCE TO SUPPORT YOUR CONTENTION THAT THE CERTIFICATION WAS MADE EITHER IN BAD FAITH OR IMPRUDENTLY. WITH REGARD TO YOUR CONTENTION THAT CAPITOL HAD AN "ARRANGEMENT" WITH SHAYNE BROTHERS, THE ONLY SUBSTANTIVE EVIDENCE INDICATES THAT SHAYNE BROTHERS ONLY INTEREST IN THE CONTRACT IS IN THE RENTAL OF SOME OF ITS EQUIPMENT TO CAPITOL FOR PERFORMANCE OF THE WORK. WHILE OUR OFFICE HAS HELD A CERTIFICATION LACKING IN GOOD FAITH WHERE THE BIDDER WAS AFFILIATED WITH ANOTHER CONCERN, THE FACTS OF THOSE CASES READILY DISTINGUISH THEM FROM THE INSTANT CASE. IN THE CASE REPORTED AT 41 COMP. GEN. 47, STANDARD STEEL WORKS HAD CERTIFIED ITSELF AS SMALL BUSINESS EVEN THOUGH IT WAS AWARE THAT SBA HAD QUESTIONED ITS STATUS AND HAD TAKEN AN INFORMAL POSITION THAT IT DID NOT QUALIFY BECAUSE OF CERTAIN AFFILIATIONS. IN ANOTHER CASE WHERE THE BIDDER, A SMALL BUSINESS CONCERN AT THE TIME ITS BID WAS SUBMITTED, MERGED PRIOR TO BID OPENING WITH ANOTHER FIRM AND BECAME LARGE, WE HELD THAT THE BIDDER COULD NOT PROPERLY CERTIFY ITSELF AS SMALL BUSINESS AT THE TIME OF BID OPENING. B-161693, JULY 21, 1967. IN THE INSTANT CASE, THE UNCONTROVERTED EVIDENCE IS THAT ALTHOUGH CHARLES COHEN HELD THE OFFICE OF PRESIDENT OF CAPITOL AT THE TIME OF BIDDING AND AWARD HE HAD NOT HELD ANY STOCK IN THE CORPORATION OR PERFORMED ANY MANAGEMENT FUNCTIONS FOR MORE THAN 4 YEARS; CAPITOL'S AVERAGE ANNUAL RECEIPTS WERE WELL BELOW THE APPLICABLE LIMIT; AND CAPITOL HAD CERTIFIED ITSELF AS A SMALL BUSINESS CONCERN ON OTHER PROCUREMENTS WITHOUT ANY SIZE CHALLENGE. IN THESE CIRCUMSTANCES, WE SEE NO BASIS FOR IMPUTING BAD FAITH OR A LACK OF PRUDENCE TO CAPITOL IN MAKING ITS CERTIFICATION. ALTHOUGH THE PRINCIPALS OF CAPITOL CHANGED THE OFFICERS ON JULY 1, 1969, WE DO NOT INTERPRET THIS AS AN ACT INDICATING BAD FAITH IN ITS EARLIER CERTIFICATION BUT, RATHER, A REALIZATION AFTER ITS SIZE WAS CHALLENGED THAT THIS WOULD BE NECESSARY TO ITS FUTURE ELIGIBILITY. FOR A SIMILIAR CASE, WHERE AFFILIATION AND POWER TO CONTROL WAS FOUND, BUT NO BAD FAITH WAS IMPUTED, SEE B-153780, JUNE 4, 1964.

FINALLY, YOU STATE THAT REGARDLESS OF WHETHER THERE IS GOOD FAITH IN A SMALL BUSINESS CERTIFICATION, THE CONTRACT MAY BE CANCELED AT THE GOVERNMENT'S OPTION, CITING B-164932(1) AND (2). IN THAT CASE THE SUCCESSFUL BIDDER HAD CERTIFIED THAT THE ITEM BEING PURCHASED WOULD BE MANUFACTURED BY A SMALL BUSINESS CONCERN. WHETHER THE BIDDER'S SMALL BUSINESS CERTIFICATION WAS IN GOOD FAITH WAS NOT THE ISSUE INVOLVED. STATED IN OUR LETTER TO THE POSTMASTER GENERAL--

THAT STATEMENT UNLIKE THE SMALL BUSINESS CERTIFICATION DOES NOT INVOLVE A "GOOD FAITH" REPRESENTATION OR STATEMENT AS TO A BELIEF CONCERNING SIZE STATUS. RATHER, IT IS AN UNQUALIFIED PROMISE THAT A SMALL BUSINESS WILL IN FACT PERFORM THE CONTRACT.

IN VIEW THEREOF, AND SINCE IT WOULD NOT BE IN THE GOVERNMENT'S INTEREST TO CANCEL THE CONTRACT, YOUR PROTEST IS DENIED.