B-170246(1), FEB 22, 1971

B-170246(1): Feb 22, 1971

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

PROTEST BASED ON CONTENTION THAT THE CONTRACTING OFFICER COULD NOT PROPERLY FIND SUCCESSFUL BIDDER TO BE RESPONSIBLE BECAUSE THE MANAGER OF AN AFFILIATE WROTE AN IMPROPER LETTER TO THE GOVERNMENT OF THE REPUBLIC OF CHINA WHICH MAY HAVE VIOLATED THE LOGAN ACT. IS WITHOUT MERIT BECAUSE PRIOR CRIMINAL ACTIVITIES. GAO HAS ADOPTED THE RULE THAT IT WILL NOT SUBSTITUTE ITS JUDGMENT FOR THAT OF THE AGENCY UNLESS IT IS CLEARLY SHOWN THAT THE AGENCY'S DETERMINATION WAS ARBITRARY OR NOT BASED ON SUBSTANTIAL EVIDENCE. THE PROTEST IS THEREFORE DENIED. SHULMAN & SCHLEI: FURTHER REFERENCE IS MADE TO YOUR LETTER OF JULY 6. THIS PROCUREMENT IS ALSO THE SUBJECT OF A PROTEST DATED OCTOBER 12. THE PRODUCTS WERE TO BE PRODUCED AT THE GOVERNMENT'S MILK PLANT AT CAMP BAKER.

B-170246(1), FEB 22, 1971

BID PROTEST - BIDDER RESPONSIBILITY - LACK OF INTEGRITY DECISION DENYING PROTEST BY SECOND LOW BIDDER, OLD DOMINION DAIRY PRODUCTS, INC., AGAINST CONTRACT FOR PRODUCTION AND SUPPLY OF RECONSTITUTED FILLED MILK AND RELATED DAIRY PRODUCTS FOR U.S. ARMED FORCES IN KOREA ISSUED BY THE U.S. ARMY AND AWARD TO LOW BIDDER, INTERNATIONAL DAIRY ENGINEERING COMPANY. PROTEST BASED ON CONTENTION THAT THE CONTRACTING OFFICER COULD NOT PROPERLY FIND SUCCESSFUL BIDDER TO BE RESPONSIBLE BECAUSE THE MANAGER OF AN AFFILIATE WROTE AN IMPROPER LETTER TO THE GOVERNMENT OF THE REPUBLIC OF CHINA WHICH MAY HAVE VIOLATED THE LOGAN ACT, 18 U.S.C. 953, IS WITHOUT MERIT BECAUSE PRIOR CRIMINAL ACTIVITIES, EVEN IN CONTRACTOR'S DEALINGS WITH THE GOVERNMENT DO NOT COMPEL A FINDING OF NONRESPONSIBILITY, AND GAO HAS ADOPTED THE RULE THAT IT WILL NOT SUBSTITUTE ITS JUDGMENT FOR THAT OF THE AGENCY UNLESS IT IS CLEARLY SHOWN THAT THE AGENCY'S DETERMINATION WAS ARBITRARY OR NOT BASED ON SUBSTANTIAL EVIDENCE. THE PROTEST IS THEREFORE DENIED.

TO KANE, SHULMAN & SCHLEI:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF JULY 6, 1970, AND SUBSEQUENT CORRESPONDENCE, RELATIVE TO YOUR PROTEST ON BEHALF OF OLD DOMINION DAIRY PRODUCTS, INC. (OLD DOMINION), AGAINST THE AWARD OF A CONTRACT TO INTERNATIONAL DAIRY ENGINEERING COMPANY (INDENCO) OR ANY OF ITS AFFILIATES, UNDER REQUEST FOR PROPOSAL NO. DAJB17-70-R-0199. THIS PROCUREMENT IS ALSO THE SUBJECT OF A PROTEST DATED OCTOBER 12, 1970, BY MEADOW GOLD-KOREA, LIMITED (MEADOW GOLD).

THE SUBJECT SOLICITATION, ISSUED ON APRIL 17, 1970, BY THE DIRECTORATE OF PROCUREMENT, UNITED STATES ARMY, JAPAN, CALLED FOR OFFERS ON THE PRODUCTION AND SUPPLY OF RECONSTITUTED FILLED MILK AND RELATED DAIRY PRODUCTS FOR THE ARMED FORCES OF THE UNITED STATES GOVERNMENT, THEIR AGENCIES AND INSTRUMENTALITIES IN THE REPUBLIC OF KOREA DURING THE PERIOD OF JANUARY 1 THROUGH DECEMBER 31, 1971. THE PRODUCTS WERE TO BE PRODUCED AT THE GOVERNMENT'S MILK PLANT AT CAMP BAKER, YONGO DONG PO, SEOUL, KOREA, MAINLY FROM INGREDIENTS PRODUCED OR PROCESSED BY UNITED STATES PLANTS. NEGOTIATIONS WERE CONDUCTED WITH OLD DOMINION, INDENCO AND MEADOW GOLD DURING JULY 1970 AND THE CLOSING DATE FOR FINAL OFFERS WAS AUGUST 7, 1970. THE FINAL OFFERS WERE EVALUATED AS FOLLOWS:

INDENCO $3,288,165

OLD DOMINION 3,654,866

MEADOW GOLD 3,786,822

IN ORDER FOR THE CONTRACTOR TO SECURE THE NECESSARY INGREDIENTS FROM THE UNITED STATES TO START PERFORMANCE ON JANUARY 1, 1971, THE CONTRACTING OFFICER DETERMINED THAT AWARD SHOULD BE MADE PROMPTLY, AND AFTER OBTAINING APPROVAL FROM HIGHER AUTHORITY, AWARD WAS MADE TO INDENCO ON OCTOBER 13, 1970, AS THE LOW, RESPONSIBLE OFFEROR. UNDER SUCH CIRCUMSTANCES, AWARD IS AUTHORIZED BY PARAGRAPH 2-407.8(B)(3) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) PRIOR TO RESOLUTION OF PROTESTS AGAINST THE AWARD.

THE BASIS OF YOUR PROTEST IS THAT THE CONTRACTING OFFICER COULD NOT PROPERLY HAVE MADE AN AFFIRMATIVE DETERMINATION OF RESPONSIBILITY WITH RESPECT TO INDENCO BECAUSE THAT FIRM, WHEN CONSIDERED WITH ITS AFFILIATES, DID NOT POSSESS THE SATISFACTORY RECORD OF INTEGRITY REQUIRED BY ASPR 1- 903.1(IV).

IN SUPPORT OF YOUR ARGUMENT YOU CONTEND THAT SHORTLY AFTER OLD DOMINION HAD OBTAINED AN AWARD OF A GOVERNMENT CONTRACT TO SUPPLY MILK PRODUCTS TO THE UNITED STATES FORCES IN TAIWAN, THE GENERAL MANAGER OF AN AFFILIATE OF INDENCO, FOREMOST DAIRIES (TAIWAN) LTD. (FOREMOST), WROTE AN IMPROPER LETTER ON MARCH 20, 1970, TO THE GOVERNMENT OF THE REPUBLIC OF CHINA. THAT LETTER FOREMOST URGED THE REPUBLIC OF CHINA NOT TO GRANT ANY SPECIAL PRIVILEGES UNDER THE STATUS OF FORCES AGREEMENT (SOFA), EFFECTIVE APRIL 12, 1966, TO THE FIRM WHICH RECEIVED THE CONTRACT (OLD DOMINION) BECAUSE THE CONTRACT WAS NOT OF A TYPE ENCOMPASSED BY THE AGREEMENT. THIS ACTION, YOU CONTEND, MAY HAVE BEEN A VIOLATION OF THE LOGAN ACT, 18 U.S.C. 953 AND THAT, IN ANY EVENT, IT SUBVERTED THE GOVERNMENT'S CONTRACTING PROCESS, IN WHICH FOREMOST WAS ENGAGED, AND SUCH A TOTAL DISREGARD OF BUSINESS ETHICS IS A DISREGARD OF INTEGRITY THAT IS THE ANTITHESIS OF AN AFFIRMATIVE DETERMINATION OF RESPONSIBILITY.

UNDER ARTICLE XII OF THE REFERENCED SOFA BETWEEN THE UNITED STATES AND THE REPUBLIC OF CHINA, AN AMERICAN CONTRACTOR WHO IS PERFORMING SOLELY FOR THE UNITED STATES ARMED FORCES ON TAIWAN IS AFFORDED CERTAIN PRIVILEGES AND EXEMPTIONS FROM THE LAWS AND REGULATIONS OF THE REPUBLIC OF CHINA, SUCH AS DUTY FREE IMPORTATION OF EQUIPMENT, MACHINERY AND MATERIALS.

THE FOREMOST LETTER OF MARCH 20 STATED IN PART:

"IN SUMMARY, WE MAINTAIN THAT THE UNITED STATES TAIWAN DEFENSE COMMAND IN BEHALF OF THE NEWLY APPOINTED CONTRACTOR HAS NO GROUNDS TO REQUEST PRIVILEGES AND EXEMPTIONS OTHER THAN THOSE DETAILED IN THE STATUS OF FORCE AGREEMENT. IT ALSO SEEMS THAT THE GOVERNMENT OF THE REPUBLIC OF CHINA CAN AND SHOULD DENY ANY AND ALL PRIVILEGES AND EXEMPTIONS INCLUDING DUTY FREE IMPORTATION OF EQUIPMENT AND MATERIALS UNTIL IT HAS BEEN DETERMINED THAT THIS CONTRACTOR CAN ESTABLISH AND OPERATE A FACTORY BY FIRST OBTAINING THE APPROPRIATE APPROVALS AND LICENSES FROM THE CHINESE GOVERNMENT IN ACCORDANCE WITH EXISTING PROCEDURES, REGULATIONS AND LAWS."

WE HAVE BEEN ADVISED BY INDENCO THAT IT IS A WHOLLY OWNED SUBSIDIARY OF FOREMOST-MCKESSON, INC., SAN FRANCISCO, CALIFORNIA, AND THAT INTERNATIONAL DAIRY ENGINEERING CO. OF ASIA, INC. (INDASIA), IS A WHOLLY OWNED SUBSIDIARY OF INDENCO. INDENCO HAS FURTHER STATED THAT SINCE AUGUST 1970 INDASIA HAS OWNED ONLY 49 PERCENT OF THE OUTSTANDING STOCK OF FOREMOST AND THE OTHER 51 PERCENT OF THE STOCK IS UNDER CHINESE OWNERSHIP. THUS, THE PRINCIPAL QUESTION RAISED BY YOUR PROTEST IS WHETHER THE LETTER OF MARCH 20 BY FOREMOST CONSTITUTES AN UNSATISFACTORY RECORD OF INTEGRITY FOR INDENCO BY REASON OF INDENCO'S RELATIONSHIP TO FOREMOST. WE THINK, FOR THE REASONS DISCUSSED BELOW, THAT THE QUESTION MUST BE ANSWERED IN THE NEGATIVE.

THE LOGAN ACT, 18 U.S.C. 953 PROVIDES IN PERTINENT PART:

"ANY CITIZEN OF THE UNITED STATES, WHEREVER HE MAY BE, WHO, WITHOUT AUTHORITY OF THE UNITED STATES, DIRECTLY OR INDIRECTLY COMMENCES OR CARRIES ON ANY CORRESPONDENCE OR INTERCOURSE WITH ANY FOREIGN GOVERNMENT OR ANY OFFICER OR AGENT THEREOF, WITH INTENT TO INFLUENCE THE MEASURES OR CONDUCT OF ANY FOREIGN GOVERNMENT OR OF ANY OFFICER OR AGENT THEREOF, IN RELATION TO ANY DISPUTES OR CONTROVERSIES WITH THE UNITED STATES, OR TO DEFEAT THE MEASURES OF THE UNITED STATES, SHALL BE FINED NOT MORE THAN $5,000 OR IMPRISONED NOT MORE THAN THREE YEARS, OR BOTH."

THIS PROVISION OF LAW, IN THAT IT CONTAINS FINE AND IMPRISONMENT TERMS, IS CRIMINAL IN NATURE AND VIOLATIONS THEREOF ARE NOT WITHIN THE PURVIEW OF OUR OFFICE TO DECIDE. THE RESPONSIBILITY FOR APPLICATION AND ENFORCEMENT OF THE CITED ACT LIES WITH THE DEPARTMENT OF JUSTICE, AND WE HAVE NOT BEEN APPRISED OF ANY ACTION BY THAT DEPARTMENT IN CONNECTION WITH THIS MATTER. IN ANY EVENT, WE HAVE HELD THAT PRIOR CRIMINAL ACTIVITIES, EVEN IN A CONTRACTOR'S DEALINGS WITH THE GOVERNMENT, DOES NOT COMPEL A FINDING OF NONRESPONSIBILITY, THE CRITICAL FACTOR FOR DETERMINATION BEING THE ABILITY AND RELIABILITY OF THE PROSPECTIVE CONTRACTOR WITH RESPECT TO THE PROPOSED AWARD. B 167108, OCTOBER 27, 1969.

IN REGARD TO AFFILIATED CONCERNS, ASPR 1-904.2 (FORMERLY 1-904.3) PROVIDES THAT AFFILIATED CONCERNS SHALL BE CONSIDERED AS SEPARATE ENTITIES IN DETERMINING WHETHER THE CONCERN WHICH IS TO PERFORM THE CONTRACT MEETS THE APPLICABLE STANDARDS FOR A RESPONSIBLE CONTRACTOR. THAT PARAGRAPH FURTHER PROVIDES, HOWEVER, THAT THE RECORD OF PERFORMANCE AND INTEGRITY OF AN AFFILIATED CONCERN WHICH MAY ADVERSELY AFFECT THE RESPONSIBILITY OF THE PROSPECTIVE CONTRACTOR SHALL BE CONSIDERED BY THE CONTRACTING OFFICER WHEN MAKING A DETERMINATION OF RESPONSIBILITY. IN THIS CONNECTION, THE CONTRACTING OFFICER, STATED IN HIS REQUEST FOR PERMISSION TO MAKE A DETERMINATION OF INDENCO'S RESPONSIBILITY OR NONRESPONSIBILITY:

"INDENCO AND ITS PREDECESSOR, INTERNATIONAL DAIRY SUPPLY COMPANY (INDASCO) HAVE BEEN PRODUCING DAIRY PRODUCTS FOR THE ARMED FORCES IN THE PACIFIC AREA UNDER NUMEROUS CONTRACTS FOR OVER 20 YEARS. THE COMPANY HAS BEEN OPERATING THE MILK PLANT IN KOREA FOR MANY YEARS. EXCEPT FOR THE ALLEGATIONS IN THE PROTEST LETTER, I HAVE NO KNOWLEDGE THAT THE INTEGRITY OF INDENCO OR ANY OF ITS PERSONNEL CONCERNED WITH THE OPERATIONS HAS EVER BEEN QUESTIONED. THE RECORD OF PERFORMANCE OF THE COMPANY HAS BEEN UNIFORMLY SATISFACTORY. INFORMAL INQUIRIES TO AGENCIES SUPPORTED BY THE CONTRACT IN KOREA HAVE RESULTED IN VERY FAVORABLE COMMENTS REGARDING PRODUCTS AND SERVICES SUPPLIED.

"BASED ON THE INFORMATION AVAILABLE TO ME, I AM UNABLE TO DETERMINE WHETHER INDENCO AND FOREMOST DAIRIES (TAIWAN) ARE AFFILIATED CONCERNS BUT FOR THE PURPOSE OF ASPR 1-904.3, THEY WILL BE SO CONSIDERED. IF IT BECOMES NECESSARY TO MAKE A DETERMINATION OF RESPONSIBILITY WITH RESPECT TO INDENCO, THE ALLEGATIONS ABOUT FOREMOST DAIRIES (TAIWAN) WILL BE CONSIDERED ALONG WITH ALL OTHER AVAILABLE INFORMATION CONCERNING THE RECORD OF PERFORMANCE AND INTEGRITY OF BOTH COMPANIES."

PRIOR TO EFFECTING THE AWARD, THE CONTRACTING OFFICER EXECUTED A WRITTEN DETERMINATION OF RESPONSIBILITY ON INDENCO AS REQUIRED BY ASPR 1-904.1. IN ARRIVING AT THIS DECISION IT WAS CONCLUDED BY THE DEPARTMENT OF THE ARMY THAT THE LETTER ITSELF DID NOT CONSTITUTE A CLEAR AND CONVINCING DEMONSTRATION OF LACK OF INTEGRITY ON THE PART OF FOREMOST. WE HAVE STRESSED THAT THE REGULATIONS CONTEMPLATE THAT AN ADMINISTRATIVE DETERMINATION OF LACK OF INTEGRITY OR BUSINESS ETHICS MUST BE BASED ON CLEAR AND CONVINCING EVIDENCE DEMONSTRATING SUCH DEFICIENCIES ON THE PART OF THE BIDDER. 39 COMP. GEN. 868 (1960). WHETHER, IN A PARTICULAR CASE, EVIDENCE OF A BIDDER'S OR OFFEROR'S INTEGRITY OR LACK OF INTEGRITY IS SUFFICIENT TO WARRANT A FINDING THAT THE BIDDER IS RESPONSIBLE OR NONRESPONSIBLE IS A MATTER PRIMARILY FOR EVALUATION BY THE PROCURING AGENCY. BECAUSE REASONABLE MEN MAY WELL DIFFER IN SUCH EVALUATION, OUR OFFICE HAS ADOPTED THE RULE THAT IT WILL NOT SUBSTITUTE ITS JUDGMENT FOR THAT OF THE AGENCY UNLESS IT IS CLEARLY SHOWN THAT THE AGENCY'S DETERMINATION WAS ARBITRARY OR NOT BASED ON SUBSTANTIAL EVIDENCE. COMP. GEN. 42 (1956); 37 ID. 798 (1958); 38 ID. 778 (1959). IN VIEW OF THE PAST PERFORMANCE RECORD OF INDENCO, THE NONRECURRING NATURE OF THE MISCONDUCT CHARGED AGAINST FOREMOST, AND OUR INABILITY TO CONCLUDE THAT ANY LACK OF INTEGRITY ON FOREMOST'S PART CAN PROPERLY BE IMPUTED TO INDENCO, WE CANNOT CONCLUDE THAT THE CONTRACTING OFFICER'S AFFIRMATIVE DETERMINATION OF RESPONSIBILITY WAS NOT BASED UPON, AND SUPPORTED BY, SUBSTANTIAL EVIDENCE.

UNDER THE CIRCUMSTANCES, WE PERCEIVE NO SUFFICIENT BASIS FOR QUESTIONING THE ADMINISTRATIVE DETERMINATION THAT INDENCO WAS A RESPONSIBLE CONTRACTOR FOR THE PROCUREMENT.

ACCORDINGLY, YOUR PROTEST IS DENIED.

A COPY OF OUR DECISION OF TODAY ON THE MEADOW GOLD PROTEST IS ENCLOSED.