B-169669, AUG 18, 1970, 50 COMP GEN 94

B-169669: Aug 18, 1970

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INDIAN AFFAIRS - CONTRACTING WITH GOVERNMENT - PREFERENCE TO INDIAN CONCERNS THE GRANT OF PREFERENTIAL TREATMENT BY NEGOTIATING A CONTRACT WITHOUT COMPETITION WITH A DAIRY CORPORATION THAT IS 51 PERCENT OWNED BY PERSONS OF INDIAN DESCENT. THAT IS LOCATED 30 MILES FROM AN INDIAN RESERVATION. WILL EMPLOY INDIAN HELP. THAT IS FINANCED BY A SMALL BUSINESS ADMINISTRATION LOAN. THE FACT THAT THE MINORITY OWNER IS A NON-INDIAN AND WILL FURNISH THE EXPERTISE AND MANAGERIAL ABILITY DOES NOT IMPUTE THAT THE FIRM IS A "STRAW" ORGANIZATION OR IS UNQUALIFIED AS AN INDIAN INDUSTRY. 1970: THIS IS IN REPLY TO YOUR TELEGRAM OF APRIL 28. YOU HAVE QUESTIONED THE PROPRIETY OF THIS DECISION FOR SEVERAL REASONS DISCUSSED BELOW.

B-169669, AUG 18, 1970, 50 COMP GEN 94

INDIAN AFFAIRS - CONTRACTING WITH GOVERNMENT - PREFERENCE TO INDIAN CONCERNS THE GRANT OF PREFERENTIAL TREATMENT BY NEGOTIATING A CONTRACT WITHOUT COMPETITION WITH A DAIRY CORPORATION THAT IS 51 PERCENT OWNED BY PERSONS OF INDIAN DESCENT; THAT IS LOCATED 30 MILES FROM AN INDIAN RESERVATION, BUT WILL EMPLOY INDIAN HELP; AND THAT IS FINANCED BY A SMALL BUSINESS ADMINISTRATION LOAN, CONFORMS TO THE REASONABLE CRITERIA ESTABLISHED TO ACCOMPLISH THE PURPOSES OF THE SO-CALLED BUY INDIAN ACT (25 U.S.C. 47), TO ACQUIRE PRODUCTS AND SERVICES FROM INDIAN INDUSTRY, AND TO THE LOAN CRITERIA ESTABLISHED BY THE ADMINISTRATION. THE FACT THAT THE MINORITY OWNER IS A NON-INDIAN AND WILL FURNISH THE EXPERTISE AND MANAGERIAL ABILITY DOES NOT IMPUTE THAT THE FIRM IS A "STRAW" ORGANIZATION OR IS UNQUALIFIED AS AN INDIAN INDUSTRY. THEREFORE, THE FIRM MAY BE CONSIDERED ELIGIBLE IF PRIOR TO AWARD IT OBTAINS THE REQUIRED INTERSTATE SHIPPER'S PERMIT.

TO THE ASSOCIATED DAIRY PRODUCTS COMPANY, AUGUST 18, 1970:

THIS IS IN REPLY TO YOUR TELEGRAM OF APRIL 28, 1970, PROTESTING THE PROPOSED PROCUREMENT OF MILK AND DAIRY PRODUCTS BY THE BUREAU OF INDIAN AFFAIRS (BIA), NAVAJO AREA, GALLUP, NEW MEXICO, FROM MOD DAIRIES, INC. (MOD) OF CORTEZ, COLORADO.

THE RECORD BEFORE US SHOWS THAT THE DEPARTMENT OF THE INTERIOR INTENDS TO RESTRICT COMPETITION TO MOD BY NEGOTIATING A 1-YEAR CONTRACT WITH IT TO SUPPLY MILK AND ICE CREAM FOR USE IN CERTAIN BIA SCHOOLS, SINCE THE DEPARTMENT CONSIDERS THE FIRM ELIGIBLE FOR PREFERENTIAL TREATMENT UNDER THE SO-CALLED BUY INDIAN ACT (HEREAFTER REFERRED TO AS THE ACT). YOU HAVE QUESTIONED THE PROPRIETY OF THIS DECISION FOR SEVERAL REASONS DISCUSSED BELOW, AND YOU EXPRESS DOUBT AS TO THE ABILITY OF MOD TO MEET THE CONTRACT REQUIREMENTS.

THE ACT REFERRED TO IS SECTION 23 OF THE ACT OF JUNE 25, 1910, 36 STAT. 861 (25 U.S. 47), WHICH PROVIDES AS FOLLOWS:

SO FAR AS MAY BE PRACTICABLE INDIAN LABOR SHALL BE EMPLOYED AND PURCHASES OF THE PRODUCTS OF INDIAN INDUSTRY MAY BE MADE IN OPEN MARKET IN THE DISCRETION OF THE SECRETARY OF THE INTERIOR.

YOU QUESTION THE PROPRIETY OF GRANTING PREFERENTIAL TREATMENT TO MOD UNDER THIS ACT, SINCE ONLY 51 PERCENT OF THE COMPANY'S STOCK IS OWNED BY PERSONS OF INDIAN DESCENT WHILE THE REMAINING STOCK IS OWNED BY AN OUTSIDE ORGANIZER WHO IS NOT AN INDIAN. FURTHERMORE, YOU NOTE THAT THE MOD PLANT IS FINANCED DIRECTLY BY A SMALL BUSINESS ADMINISTRATION (SBA) LOAN AND YOU ALLEGE THAT NO PRINCIPAL HAS INVESTED MONEY IN IT. YOU STATE THAT IT COULD NOT BE THE INTENT OF THE ACT TO APPLY IN SUCH CIRCUMSTANCES. IT IS YOUR BELIEF THAT THE CONTRACT CANNOT HELP THE NAVAJO TRIBE SINCE THE PLANT IS LOCATED 30 MILES OFF THE RESERVATION, AND YOU FURTHER CONTEND THAT RESTRICTED NEGOTIATION WILL RESULT IN A HIGHER PRICE WHICH WOULD REDUCE MONIES AVAILABLE FOR OTHER NEEDED PROJECTS.

IN A REPORT TO THIS OFFICE, THE DEPARTMENT OF THE INTERIOR HAS ADVISED THAT THE COMMISSIONER OF INDIAN AFFAIRS, UNDER THE AUTHORITY DELEGATED TO HIM BY THE SECRETARY OF THE INTERIOR, HAS INSTRUCTED THAT WHENEVER IT IS POSSIBLE TO DO SO, PRODUCTS AND SERVICES SHALL BE ACQUIRED FROM INDIVIDUAL INDIANS OR ORGANIZATIONS WHICH QUALIFY AS INDIAN INDUSTRY. THE COMMISSIONER'S INSTRUCTION, DATED AUGUST 22, 1968, PROVIDES A DEFINITION OF INDIAN INDUSTRY WHICH INCLUDES, IN PERTINENT PART, FIRMS CONTROLLED BY INDIANS, OF WHICH AT LEAST 51 PERCENT OF THE OWNEDSHIP IS BY INDIANS, IRRESPECTIVE OF LOCATION OR OF THE LABOR FORCE EMPLOYED. FURTHERMORE, A FIRM EITHER MAY BE ENGAGED IN THE MANUFACTURE OR SALE OF THE PRODUCT DESIRED OR, IF NOT ACTUALLY ENGAGED AT THE TIME OF THE GOVERNMENT'S REQUIREMENT, IT MUST BE QUALIFIED TO COMMENCE AND PROPERLY PERFORM SUCH ACTIVITY UPON AWARD OF A CONTRACT. IN ADDITION, THIS INSTRUCTION STATES THAT THE BUREAU'S OBJECTIVES SHOULD BE CARRIED OUT AS EFFICIENTLY UNDER THE ACT AS THEY WOULD BE OTHERWISE, ADHERING TO SPECIFICATION STANDARDS, QUALITY OF WORK PERFORMED, AND ECONOMY.

IT IS CLEAR THAT THE ABOVE-QUOTED STATUTE CONFERS A CONSIDERABLE DEGREE OF DISCRETION UPON THE SECRETARY OF THE INTERIOR IN PURCHASING THE PRODUCTS OF INDIAN INDUSTRY. IN THE ABSENCE OF A CLEAR ABUSE OF SUCH DISCRETION, THERE IS NO BASIS FOR OBJECTING TO THE PREFERENCE GIVEN PURSUANT TO THE ACT. SEE 37 COMP. GEN. 368 (1957) AND B-167841, DECEMBER 18, 1969. THE DEPARTMENT OF INTERIOR ADVISES THAT IT DOES NOT CONDONE THE SETTING UP OF "STRAW" ORGANIZATIONS WHICH MERELY APPEAR TO BE INDIAN INDUSTRIES BUT, ON THE OTHER HAND, IT DOES NOT CONSIDER A FIRM TO BE A "STRAW" ORGANIZATION OR UNQUALIFIED AS AN INDIAN INDUSTRY, MERELY BECAUSE A MINORITY OWNER IS A NON-INDIAN AND WILL FURNISH THE EXPERTISE AND MANAGERIAL ABILITY FOR THE BUSINESS. WHILE THE RECORD INDICATES THAT CERTAIN INDIANS WHO WERE EMPLOYEES OF BIA AND WHO OWNED PART OF THE COMPANY IN 1969 RELINQUISHED EITHER OWNERSHIP IN THE CORPORATION OR THEIR POSITION WITH BIA TO AVOID A CONFLICT OF INTEREST, WE ARE ADVISED THAT BIA HAS VERIFIED THAT MOD PRESENTLY MEETS THE ESTABLISHED OWNERSHIP AND OTHER CRITERIA FOR QUALIFYING AS AN INDIAN INDUSTRY.

IN OUR OPINION, WE FIND THE ABOVE CRITERIA FOR DETERMINING WHAT WILL QUALIFY AS AN INDIAN INDUSTRY, SPECIFICALLY THE REQUIREMENT FOR 51 PERCENT OWNERSHIP BY INDIANS, TO BE REASONABLY WITHIN THE PROPER EXERCISE OF THE DISCRETION CONFERRED BY THE ACT.

WITH RESPECT TO YOUR OBSERVATION THAT THE MOD PLANT IS BEING FINANCED BY SBA, WE NOTE THAT THIS ARRANGEMENT DOES NOT NECESSARILY DISQUALIFY MOD UNDER THE ESTABLISHED CRITERIA. MOREOVER, THE RECORD SHOWS THAT SBA REQUIRED, AS A CONDITION TO THE LOAN, THAT 10 PERCENT OF THE APPROVED PROJECT COSTS BE RAISED BY THE BORROWER AND THAT SUCH SUMS BE EXPENDED FIRST. WE ALSO NOTE THAT THE LOAN HAS BEEN SECURED BY A FIRST DEED OF TRUST ON CERTAIN REAL PROPERTY; BY A FIRST LIEN ON THE COMPANY'S MACHINERY, EQUIPMENT, AND FURNITURE PRESENTLY OWNED AND TO BE ACQUIRED; AND THAT THE PRINCIPALS HAVE PERSONALLY GUARANTEED THE OUTSTANDING BALANCE OF THE LOAN IN ACCORDANCE WITH THEIR INTEREST IN THE CORPORATION. FURTHERMORE, UNDER THE TERMS OF THE LOAN AGREEMENT THE COMPANY IS REQUIRED TO SUBMIT SATISFACTORY EVIDENCE TO SBA THAT IT HAS $50,000 IN CASH TO BE USED AS INITIAL WORKING CAPITAL, IN ADDITION TO ANY FUNDS NECESSARY FOR ANY CAPITAL IMPROVEMENT TO BE PAID BY MOD.

WITH RESPECT TO YOUR CONTENTION THAT A CONTRACT WITH MOD CANNOT HELP THE NAVAJO TRIBE BECAUSE IT IS LOCATED 30 MILES OFF THE RESERVATION AND THAT THE HIGHER PRICE PAID TO MOD WILL REDUCE MONIES AVAILABLE FOR OTHER NEEDED PROJECTS, THE DEPARTMENT POINTS OUT THAT A CONSIDERABLE NUMBER OF INDIANS, POSSIBLY AS MANY AS ONE HUNDRED, WILL BE EMPLOYED IN VARIOUS JOBS. ALSO, THE DEPARTMENT ADVISES IT IS NOT CONTEMPLATED THAT HIGHER PRICES WILL BE PAID TO MOD THAN THE GOING PRICES IN THE AREA INVOLVED.

YOU QUESTION THE CAPABILITIES OF MOD TO PERFORM THE CONTRACT ON SEVERAL GROUNDS. THESE ARE, GENERALLY, THE FIRM'S LACK OF EXPERIENCE, ITS CAPACITY TO MEET THE DISTANCE TRAVEL REQUIREMENTS FOR DELIVERY OF THE PRODUCTS, AND ITS ABILITY TO QUALIFY FOR AN INTERSTATE SHIPPER'S PERMIT.

THE DEPARTMENT STATES THAT IT RECOGNIZES THE RISKS INHERENT IN A NEW BUSINESS UNDERTAKING, BUT THAT BIA WOULD NOT BE OF ANY REAL ASSISTANCE IF IT WAITED UNTIL AN ASPIRING INDIAN GROUP GOT A BUSINESS UNDER WAY AND FULLY OPERATIONAL BEFORE DEALING WITH IT. FURTHERMORE, BIA IS PREPARED, AT LEAST IN THE BEGINNING, TO EXERT SOME EFFORT TO HELP THIS FLEDGLING INDIAN ORGANIZATION TO MAKE A SUCCESS OF ITS CONTRACT AND BUSINESS. BIA BELIEVES THAT THE NON-INDIAN MINORITY OWNER HAS THE EXPERTISE AND MANAGERIAL ABILITY FOR CONDUCTING THE BUSINESS. WITH RESPECT TO MOD'S CAPACITY FOR MEETING DELIVERY REQUIREMENTS, CONSIDERING THE PLANT'S DISTANCE FROM THE SCHOOLS, THE DEPARTMENT ADVISES THAT THE PLANT IS LOCATED APPROXIMATELY 20 MILES FROM THE NORTHEAST CORNER OF THE NAVAJO RESERVATION, AND THAT MOD WILL BE FACED WITH THE SAME PROBLEMS IN MEETING IDENTICAL DELIVERY SCHEDULE REQUIREMENTS AS WOULD FACE ANY OTHER CONTRACTOR. WE HAVE BEEN INFORMALLY ADVISED BY THE DEPARTMENT THAT MOD HAS ACCESS BY RENTAL TO AS MANY TRUCKS AS IT WILL NEED TO EFFECT SATISFACTORY DELIVERY. WHILE YOU STATE THAT THE FIRM WILL NOT BE ABLE TO QUALIFY FOR AN INTERSTATE SHIPPING PERMIT SINCE THE FIRM IS NOT IN OPERATION, THE DEPARTMENT HAS ADVISED THAT INSPECTIONS BY THE STATE PUBLIC HEALTH SERVICE ARE MADE AFTER THE PLANT IS COMPLETED AND OPERATIONAL BUT PRIOR TO THE PROCESSING OF MILK PRODUCTS. IT IS REPORTED THAT MOD'S PLANT IS IN THE FINAL STAGES OF COMPLETION AND WILL BE READY FOR INSPECTION BY APPROXIMATELY THE SECOND WEEK IN AUGUST AND WILL BE READY TO PROCESS MILK PRODUCTS THEREAFTER. IN THIS REGARD, HOWEVER, WE HAVE SUGGESTED TO THE SECRETARY OF THE INTERIOR BY LETTER OF TODAY THAT A CONTRACT SHOULD NOT BE AWARDED UNTIL THE REQUIRED PERMIT HAS BEEN ISSUED TO MOD, SINCE THE COMMISSIONER, BIA, HAS DIRECTED THAT INDIAN FIRMS NOT ACTUALLY ENGAGED IN THE MANUFACTURE OR SALE OF THE PRODUCT DESIRED MUST BE QUALIFIED TO COMMENCE AND PROPERLY PERFORM SUCH ACTIVITY UPON AWARD OF A CONTRACT.

FOR THE REASONS STATED, WE FIND NO LEGAL BASIS FOR OBJECTING TO THE DEPARTMENT'S DECISION TO PROCURE DAIRY PRODUCTS FROM MOD WITHOUT OBTAINING COMPETITION, PROVIDED THAT PRIOR TO AWARD THE COMPANY OBTAINS THE NECESSARY INTERSTATE SHIPPER'S PERMIT AND IS DETERMINED BY THE DEPARTMENT TO BE OTHERWISE CAPABLE OF PERFORMING THE CONTRACT.