B-169083, APRIL 28, 1970, 49 COMP. GEN. 740

B-169083: Apr 28, 1970

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BECAUSE THE CONTRACTING OFFICER WAS UNAWARE OF THE CONCERN'S CHANGED SIZE STATUS. WAS IN ACCORD WITH PARAGRAPHS 1- 706.5(A)(1) AND 1-706.3(A) OF THE ARMED SERVICES PROCUREMENT REGULATION. THE WITHDRAWAL DETERMINATION PROPERLY CONSIDERED THE "COURTESY" BID OF THE LARGE BUSINESS CONCERN SUBMITTED AT A PRICE THAT WAS LESS THAN HALF OF THE LOWEST SMALL BUSINESS PRICE. EVEN THOUGH NO FORMAL INQUIRY WAS MADE TO ESTABLISH THE CORRECTNESS OF THE LARGE BUSINESS CONCERN'S PRICE AS THE FIRM WAS INELIGIBLE FOR AWARD UNDER THE SET-ASIDE. 1970: FURTHER REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 12. IFB 0145 WAS ISSUED AS A TOTAL SET-ASIDE FOR SMALL BUSINESS ON DECEMBER 11. WAS OPENED ON DECEMBER 26.

B-169083, APRIL 28, 1970, 49 COMP. GEN. 740

CONTRACTS -- AWARDS -- SMALL BUSINESS CONCERNS -- PRICE REASONABLENESS THE CANCELLATION OF AN INVITATION FOR BIDS THAT CONTAINED A TOTAL SET ASIDE FOR SMALL BUSINESS CONCERNS DUE TO THE DISPARITY IN BID PRICES EVIDENCED BY THE BID OF A LARGE BUSINESS CONCERN WHO HAD ACQUIRED A SMALL BUSINESS THAT HAD BEEN SOLICITED TO SUBMIT A BID HAVING SATISFACTORILY PERFORMED UNDER PRIOR CONTRACTS, BECAUSE THE CONTRACTING OFFICER WAS UNAWARE OF THE CONCERN'S CHANGED SIZE STATUS, AND THE READVERTISEMENT OF THE PROCUREMENT ON AN UNRESTRICTED BASIS, WAS IN ACCORD WITH PARAGRAPHS 1- 706.5(A)(1) AND 1-706.3(A) OF THE ARMED SERVICES PROCUREMENT REGULATION, AND THE WITHDRAWAL DETERMINATION PROPERLY CONSIDERED THE "COURTESY" BID OF THE LARGE BUSINESS CONCERN SUBMITTED AT A PRICE THAT WAS LESS THAN HALF OF THE LOWEST SMALL BUSINESS PRICE, EVEN THOUGH NO FORMAL INQUIRY WAS MADE TO ESTABLISH THE CORRECTNESS OF THE LARGE BUSINESS CONCERN'S PRICE AS THE FIRM WAS INELIGIBLE FOR AWARD UNDER THE SET-ASIDE.

TO WEST POINT RESEARCH, APRIL 28, 1970:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 12, 1970, AND SUBSEQUENT CORRESPONDENCE, PROTESTING THE CANCELLATION OF INVITATION FOR BIDS (IFB) NO. DAAF07-70-B-0145 ("IFB 0145") FOR 1856 FIRING PIN ASSEMBLIES, AND THE READVERTISING OF THE SAME ITEM BY IFB NO. DAAF07-70 B- 0191 ("IFB 0191"), ISSUED BY WATERVLIET ARSENAL, WATERVLIET, NEW YORK.

IFB 0145 WAS ISSUED AS A TOTAL SET-ASIDE FOR SMALL BUSINESS ON DECEMBER 11, 1969, AND WAS OPENED ON DECEMBER 26, 1969. BIDS WERE SOLICITED FROM 12 PROSPECTIVE BIDDERS INCLUDING A PRIOR CONTRACTOR, ARGO DEVELOPMENT CORPORATION. SIX BIDS WERE RECEIVED, AS FOLLOWS:

BIDDER UNIT PRICE HENRY

PRODUCTS CO., INC. $ 5.08 WEST POINT

RESEARCH, INC.

10.90 FIEDLER MACHINE CO., INC. 11.73 SANTA FE MFG. CORP.

11.95 ACARON DIVISION, STANDARD HELICOPTERS 13.79 SUBURBAN TOOL & MFG. CO. 23.50 IN THE COURSE OF PLANNING THE PROCUREMENT, THE CONTRACTING OFFICER HAD DETERMINED THAT THE ENTIRE PROCUREMENT SHOULD BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION, AND THIS DETERMINATION WAS CONCURRED IN BY THE PROCURING ACTIVITY'S SMALL BUSINESS ADVISER.

THE BID OF HENRY PRODUCTS CO., INC., A LARGE BUSINESS NOT ON THE BIDDERS' LIST, INCLUDED A COVER SHEET WHICH STATED:

THIS IS TO ADVISE THAT ARGO DEVELOPMENT CORP. HAS CONSOLIDATED ITS

OPERATIONS WITH HENRY PRODUCTS CO., INC. AND ALL ADMINISTRATION AND SALES

WILL BE PERFORMED AT THE ABOVE ADDRESS. THIS BID ALSO CONTAINED THE EXPLANATION THAT THE FIRING PIN ASSEMBLIES WERE "PREVIOUSLY MANUFACTURED BY ARGO DEVELOPMENT CORP. UNDER CONTRACT NO. DAAG25-68-C 1238." ARGO DEVELOPMENT CORPORATION WAS ONE OF THE SMALL BUSINESSES ON THE BIDDERS' LIST FOR THIS PROCUREMENT AND, AT THE TIME OF THE DETERMINATION TO SET THIS PROCUREMENT ASIDE FOR SMALL BUSINESS CONCERNS, THE CONTRACTING OFFICER WAS UNAWARE OF THE CHANGE IN ARGO'S SMALL BUSINESS STATUS.

AWARD TO YOUR FIRM AS THE LOWEST SMALL BUSINESS BIDDER WOULD HAVE RESULTED IN A CONTRACT PRICE OF $20,230.40. ALTHOUGH HENRY PRODUCTS WAS NOT ELIGIBLE FOR AWARD UNDER IFB 0145, ITS BID PRICE INDICATED THE FIRING PIN ASSEMBLIES COULD BE PURCHASED FOR $9,428.48, A SAVINGS OF $10,801.92. HENRY PRODUCTS WAS CONTACTED AND A REPRESENTATIVE OF THAT FIRM ORALLY CONFIRMED ITS UNIT PRICE OF $5.08. A REVIEW OF CONTRACT DAAG25-68-C-1238 ESTABLISHED THAT IN 1968, ARGO DEVELOPMENT CORPORATION HAD MADE TIMELY DELIVERY OF 4816 FIRING PIN ASSEMBLIES AT A UNIT PRICE OF $6.47. THESE CONSIDERATIONS LED THE CONTRACTING OFFICER TO DETERMINE, ON FEBRUARY 4, 1970, THAT THE FIRING PIN ASSEMBLIES COULD NOT BE OBTAINED AT REASONABLE PRICES FROM SMALL BUSINESS CONCERNS AS REQUIRED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-706.5. THEREFORE, IT WAS DECIDED TO WITHDRAW THE SET-ASIDE, CANCEL IFB 0145, AND READVERTISE FOR UNRESTRICTED COMPETITION. THE PROCURING ACTIVITY'S SMALL BUSINESS ADVISER CONCURRED IN THIS DECISION.

ON FEBRUARY 6, 1970, IFB NO. DAAF07-70-B-0191 WAS ISSUED, SOLICITING BIDS ON AN UNRESTRICTED BASIS. THE FOLLOWING BIDS WERE RECORDED AT THE BID OPENING ON FEBRUARY 16, 1970:

BIDDER UNIT PRICE

HENRY PRODUCTS CO., INC. $ 5.95 SANTA

FE MFG. CO.

10.85 WEST POINT RESEARCH 10.90 FIEDLER MACHINE CO., INC. 11.49 ACARON DIVISION, STANDARD HELICOPTERS

13.31 SUBURBAN TOOL & MFG. CO. 18.75 AN AWARD BASED UPON THESE BIDS HAS BEEN WITHHELD PENDING OUR CONSIDERATION OF YOUR PROTEST.

YOU PROTEST THE CANCELLATION OF IFB 0145, THE WITHDRAWAL OF THE SET ASIDE, AND THE RESOLICITATION ON AN UNRESTRICTED BASIS ON THE GROUND THAT THE PROCURING ACTIVITY SHOULD NOT HAVE CONSIDERED THE "IMPOSSIBLY LOW PRICE SUBMISSION" OF HENRY PRODUCTS IN DETERMINING THE REASONABLENESS OF THE BIDS RECEIVED FROM SMALL BUSINESSES. YOU STATE THAT YOUR UNIT PRICE OF $10.90 IS IN LINE WITH THE GOVERNMENT ESTIMATE FOR THIS PROCUREMENT AND REFLECTS A "REASONABLE AND PROPERLY COMPETITIVE" PRICE. YOU FURTHER STATE THAT HENRY PRODUCTS SUBMITTED A CONTRIVED LOW BID, WHICH IT KNEW COULD NOT BE ACCEPTED, FOR THE PURPOSE OF OPENING THE PROCUREMENT TO BIG BUSINESS AND EXPOSING THE BIDS OF ITS FUTURE COMPETITORS, AND THAT CONSIDERATION OF THE HENRY PRODUCTS BID IN CANCELING IFB 0145 WITHOUT VERIFYING ITS ACCURACY AND REASONABLENESS DOES NOT AFFORD THE PROTECTION TO SMALL BUSINESSES CONTEMPLATED BY THE SMALL BUSINESS SET-ASIDE PROGRAM.

WITH RESPECT TO THE PROPRIETY OF THE DECISION OF THE CONTRACTING OFFICER TO REJECT ALL BIDS UNDER IFB 0145, ASPR 1-706.5(A)(1) PROVIDES THAT A PROCUREMENT MAY BE TOTALLY SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION:

*** IF THE CONTRACTING OFFICER DETERMINES THAT THERE IS REASONABLE EXPECTATION THAT BIDS OR PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES. TOTAL SET-ASIDES SHALL NOT BE MADE UNLESS SUCH A REASONABLE EXPECTATION EXISTS. ***

IN ADDITION, ASPR 1-706.3(A) AUTHORIZES WITHDRAWAL OF SMALL BUSINESS SET- ASIDES AS FOLLOWS:

(A) *** IF, PRIOR TO AWARD OF A CONTRACT INVOLVING AN INDIVIDUAL OR CLASS SET-ASIDE, THE CONTRACTING OFFICER CONSIDERS THAT PROCUREMENT OF THE SET- ASIDE FROM A SMALL BUSINESS CONCERN WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST (E.G., BECAUSE OF UNREASONABLE PRICE), HE MAY WITHDRAW A UNILATERAL OR JOINT SET-ASIDE DETERMINATION BY GIVING WRITTEN NOTICE TO THE SMALL BUSINESS SPECIALIST, AND THE SBA REPRESENTATIVE IF AVAILABLE, STATING THE REASONS FOR THE WITHDRAWAL. IN A SIMILAR MANNER, A UNILATERAL OR JOINT CLASS SET-ASIDE MAY BE MODIFIED TO WITHDRAW ONE OR MORE INDIVIDUAL PROCUREMENTS.

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. HOWEVER, 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 PROCURING ACTIVITY, OR THAT THE PROCURING ACTIVITY WOULD BE PROHIBITED FROM WITHDRAWING A SET-ASIDE DETERMINATION WHERE THE BIDS SUBMITTED BY SMALL BUSINESS CONCERNS WERE CONSIDERED UNREASONABLE. 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, PROPERLY PERMIT THE WITHDRAWAL OF A SET-ASIDE, BASED UPON A VALID DETERMINATION THAT BID PRICES RECEIVED FROM SMALL BUSINESS CONCERNS ARE UNREASONABLE. B-149889, NOVEMBER 2, 1962.

UNDER THE TERMS OF IFB 0145 (PAGE 16), BIDS FROM LARGE BUSINESS CONCERNS WERE TO BE CONSIDERED AS NONRESPONSIVE AND WERE TO BE REJECTED. SUCH BIDS, WHILE NONRESPONSIVE, ARE REGARDED AS COURTESY BIDS AND OUR OFFICE HAS NOT OBJECTED TO THE CONSIDERATION OF A COURTESY BID IN DETERMINING WHETHER SMALL BUSINESS BIDS SUBMITTED IN THE SAME PROCUREMENT WERE UNREASONABLE. IN OUR RECONSIDERATION, DATED AUGUST 11, 1961, AFFIRMING OUR DECISION B-145376, JUNE 21, 1961, WE STATED:

WE ARE NOT AWARE OF ANY RESTRICTION ON A PROCURING AGENCY AS TO THE FACTORS TO BE CONSIDERED IN DETERMINING WHETHER PRICES QUOTED UNDER A SMALL BUSINESS SET-ASIDE ARE FAIR AND REASONABLE AND WHETHER THE SMALL BUSINESS SET-ASIDE SHOULD BE WITHDRAWN AND THE PROCUREMENT READVERTISED. A "COURTESY BID" WOULD APPEAR TO BE A FACTOR PROPER FOR CONSIDERATION. SEE ALSO B-169008, APRIL 8, 1970; B-164523, AUGUST 28, 1968; B-158789, MAY 19, 1966, AFFIRMED ON RECONSIDERATION, AUGUST 5, 1966; 45 COMP. GEN. 613 (TO AMERICAN ELECTRONIC LABORATORIES, INC.); B 153264, APRIL 13, 1964; B- 151741, JULY 30, 1963.

YOU HAVE CITED OUR DECISION B-168534, JANUARY 16, 1970, IN SUPPORT OF YOUR CONTENTION THAT THE CONTRACTING OFFICER IN THE INSTANT CASE IMPROPERLY CONSIDERED THE LARGE BUSINESS BID IN DETERMINING THE REASONABLENESS OF SMALL BUSINESS BIDS. UNDER THE CIRCUMSTANCES OF THAT CASE INVOLVING A BIG BUSINESS BID OF $237,110.30 AND A LOW SMALL BUSINESS BID OF $247,501.88, WE STATED THAT THE RECEIPT OF A LOWER BID FROM A LARGE BUSINESS IS INSUFFICIENT TO REQUIRE A CONCLUSION THAT THE SMALL BUSINESS PRICES ARE UNREASONABLE. IT SHOULD BE NOTED, HOWEVER, THAT SUCH STATEMENT DOES NOT ADDRESS THE MATTER OF DISPARITY BETWEEN THE LARGE AND SMALL BUSINESS BIDS, AND CANNOT REASONABLY BE CONSTRUED AS EXPRESSING THE VIEW THAT THE AMOUNT OF THE DIFFERENCE IN SUCH BIDS MAY NOT PROPERLY BE CONSIDERED AS A FACTOR IN DETERMINING THE REASONABLENESS OF SMALL BUSINESS BIDS.

IN REGARD TO THE REASONABLENESS OF THE SMALL BUSINESS BIDS, YOU CONTEND THAT YOUR UNIT PRICE OF $10.90 VERIFIED THE ACCURACY AND REASONABLENESS OF THE GOVERNMENT ESTIMATE FOR THE PROCUREMENT, WHICH YOU UNDERSTAND WAS $10 PER UNIT. YOU ALSO MAINTAIN THAT HENRY PRODUCTS' UNIT PRICE OF $5.08 WAS EITHER IN ERROR OR UNREASONABLE AND A DELIBERATE ATTEMPT TO OPEN UP THE PROCUREMENT AND EXPOSE THE SMALL BUSINESS BIDS. ALTHOUGH WATERVLIET ARSENAL PERSONNEL WERE OF THE OPINION THAT THE ESTIMATED UNIT COST OF THE ASSEMBLIES WAS $13, THE PRICE OF $6.47 IS THE OFFICIAL GOVERNMENT ESTIMATE SET BY THE ARMY WEAPONS COMMAND UPON WHICH THE FUNDING OF THE PROCUREMENT WAS BASED. HOWEVER, THERE IS SUPPORT IN THE PRESENT RECORD FOR YOUR CONTENTION THAT HENRY PRODUCTS' UNIT PRICE OF $5.08 WAS IN ERROR. STATED ABOVE, THAT FIRM ORALLY CONFIRMED ITS PRICE AND THUS IT APPEARED CORRECT TO THE CONTRACTING OFFICER AT THE TIME HE DECIDED TO CANCEL IFB 0145 AND WITHDRAW THE SET-ASIDE. AFTER HENRY PRODUCTS BID A UNIT PRICE OF $5.95 IN RESPONSE TO IFB 0191, THE PROCURING ACTIVITY REQUESTED AN EXPLANATION FOR THE INCREASE OF 87 CENTS PER UNIT, WHEREUPON HENRY PRODUCTS REPLIED THAT IT HAD PREVIOUSLY OMITTED THE COST OF AN ITEM FROM ITS BILL OF MATERIALS.

NO FORMAL INQUIRY WAS MADE TO ESTABLISH THE CORRECTNESS OF HENRY PRODUCTS' BID OF $5.08 PER UNIT, SINCE THAT FIRM WAS INELIGIBLE FOR AWARD UNDER IFB 0145. HOWEVER, WE BELIEVE THAT THE CONTRACTING OFFICER'S COMPARISON OF THAT BID WITH THE SMALL BUSINESS BIDS WAS NOT IMPROPER ACTION IN VIEW OF HENRY PRODUCTS' ORAL CONFIRMATION OF ITS PRICE AND THE OFFICIAL ESTIMATED UNIT PRICE OF $6.47. UNDER THE CIRCUMSTANCES AS OUTLINED ABOVE, WE FIND NO LEGAL BASIS TO OBJECT TO THE CONTRACTING OFFICER'S DECISION TO CANCEL IFB 0145, WITHDRAW THE SET ASIDE, AND READVERTISE ON AN UNRESTRICTED BASIS.

YOU HAVE ALSO STATED THAT YOU WERE NOT NOTIFIED OF THE CANCELLATION OF IFB 0145. THE RECORD SHOWS THAT SUCH NOTICE WAS MAILED TO ALL BIDDERS, INCLUDING YOUR FIRM, ON FEBRUARY 4, 1970. WHILE IT IS REGRETTABLE THAT YOU DID NOT RECEIVE THIS NOTICE, ITS NONRECEIPT CAN HAVE NO BEARING ON THE VALIDITY OF THE CANCELLATION.

ACCORDINGLY, YOUR PROTEST MUST BE DENIED.