B-171548, B-171912, APR 30, 1971, 50 COMP GEN 759

B-171548, B-171912, APR 30, 1971, 50 COMP GEN 759

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SET-ASIDES - PERFORMANCE IN FOREIGN COUNTRY THE USE OF A SMALL BUSINESS SET-ASIDE ISSUED PURSUANT TO PARAGRAPH 1 706.5(A)(1) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) FOR THE PROCUREMENT OF DAIRY PRODUCTS OVERSEAS, ON THE BASIS OF A REASONABLE EXPECTATION OF COMPETITION, WAS PROPER PROCEDURE, EVEN THOUGH ASPR 1 700 DOES NOT INCLUDE FOREIGN AREAS IN THE GEOGRAPHICAL AREAS LISTED FOR THE PERFORMANCE OF SET-ASIDES, AS THE INTENT OF THE SMALL BUSINESS ACT IS TO BENEFIT SMALL BUSINESS CONCERNS AND THE PLACE OF PERFORMANCE PER SE HAS NO BEARING OTHER THAN TO REQUIRE CONSIDERATION OF THE GREATER COMPLEXITIES INVOLVED IN PERFORMING A CONTRACT IN A FOREIGN AREA IN SELECTING A RESPONSIBLE OFFEROR. MOREOVER, PROPER PROCEDURES WERE ALSO FOLLOWED IN NOT REFERRING THE EXPECTATION OF RECEIVING PROPOSALS AT REASONABLE PRICES TO HIGHER AUTHORITY, IN PROVIDING FOR THE POSSIBLE SUBMISSION OF A CERTIFICATE OF CURRENT COST OR PRICING DATA BY THE SUCCESSFUL OFFEROR; AND IN THE MANNER OF SOLICITING "COURTESTY BIDS" FROM LARGE CONCERNS.

TO MILLER, GROEZINGER, PETTIT & EVERS, APRIL 30, 1971:

FURTHER REFERENCE IS MADE TO YOUR PROTESTS ON BEHALF OF FOREMOST MCKESSON, INC. (FOREMOST), AGAINST THE USE OF 100 PERCENT SMALL BUSINESS SET-ASIDES UNDER REQUEST FOR PROPOSALS (RFP) NOS. N00189-71-R 0035 AND N00189-71-R-0090, BOTH OF WHICH WERE ISSUED BY THE NAVAL SUPPLY CENTER, NORFOLK, VIRGINIA (NSC NORVA).

BOTH SOLICITATIONS INVITED COMPETITIVE OFFERS COVERING REQUIREMENTS TYPE CONTRACTS FOR NUMEROUS ITEMS OF RECOMBINED FILLED-MILK AND RELATED DAIRY PRODUCTS FOR DELIVERY TO VARIOUS ASHORE AND AFLOAT NAVAL ACTIVITIES AT NAPLES, ITALY, AND ROTA, SPAIN, RESPECTIVELY.

THE INSTANT RFP'S WERE ISSUED PURSUANT TO SECTION 1-706.5(A)(1) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), ON A 100 PERCENT SMALL BUSINESS SET-ASIDE BASIS, THE CONTRACTING OFFICER AND SMALL BUSINESS SPECIALIST HAVING MADE A PRIOR JOINT DETERMINATION THAT THERE WAS REASONABLE EXPECTATION OF RECEIVING PROPOSALS UNDER BOTH SOLICITATIONS FROM TWO OR MORE RESPONSIBLE SMALL BUSINESS FIRMS SO TO ASSURE THAT AWARDS COULD BE MADE AT FAIR AND REASONABLE PRICES. SPECIFICALLY, THE SMALL BUSINESS FIRMS ORIGINALLY EXPECTED TO SUBMIT PROPOSALS WERE:

(A) OLD DOMINION DAIRY PRODUCTS, INC. (OLD DOMINION)

(B) UNITED DAIRY EQUIPMENT COMPANY (UNITED)

(C) SERVRITE INTERNATIONAL, LTD. (SERVRITE)

(D) STERILE FOOD PRODUCTS(STERILE)

SINCE IT WOULD APPEAR FROM THE ADMINISTRATIVE REPORTS FURNISHED OUR OFFICE, COPIES OF WHICH WERE FURNISHED YOUR OFFICE, THAT THERE WAS EVERY REASONABLE EXPECTATION TO BELIEVE THAT THE AFOREMENTIONED COMPANIES WOULD SUBMIT OFFERS ON THE ROTA, SPAIN, PROCUREMENT (RFP N00189-71-R-0090), AND SINCE YOUR COMPLAINTS CONCERNING BOTH PROCUREMENTS ARE ESSENTIALLY THE SAME, WE WILL DIRECT OUR COMMENTS PRINCIPALLY TO THE FACTS AND CIRCUMSTANCES SURROUNDING THE NAPLES, ITALY, PROCUREMENT (RFP N00189-71-R- 0035).

THE JOINT DETERMINATION TO TOTALLY SET ASIDE THE NAPLES PROCUREMENT FOR 100 PERCENT SMALL BUSINESS PARTICIPATION WAS BASED IN PART ON THE FACT THAT EXCEPT FOR STERILE, ALL OF THE ABOVE LISTED SMALL BUSINESS FIRMS HAD SUBMITTED COMPETITIVE PROPOSALS UNDER A SOMEWHAT SIMILAR PROCUREMENT IN OCTOBER 1970 WHICH WAS TOTALLY SET ASIDE FOR SMALL BUSINESS, COVERING A DAIRY PRODUCTS CONTRACT AT GUANTANAMO BAY NAVAL BASE, CUBA. ADDITIONALLY, STERILE HAD PREVIOUSLY ADVISED NSC NORVA OF ITS INTENT TO COMPETE UNDER THE PROTESTED PROCUREMENT. HOWEVER, OF THE FOUR SMALL BUSINESS FIRMS FROM WHICH PROPOSALS WERE ORIGINALLY ANTICIPATED, UNITED AND STERILE COMPLETELY WITHDREW ALL INTEREST IN THE PROCUREMENT AFTER ITS ISSUANCE, AND SERVRITE FURNISHED CONFLICTING INFORMATION OF ITS INTENTIONS COVERING SUBMISSION OF A PROPOSAL. CONSEQUENTLY, ON NOVEMBER 23, 1970, THE CONTRACTING OFFICER DETERMINED THAT SINCE OLD DOMINION WAS THE ONLY KNOWN REMAINING SMALL BUSINESS CONCERN INTERESTED IN MAKING AN OFFER, TO CONTINUE THE PROCUREMENT AS A TOTAL SMALL BUSINESS SET-ASIDE WOULD BE VIOLATIVE OF ASPR 1 706.5(A)(1), WHICH PROVIDES THAT TOTAL SET-ASIDES SHALL NOT BE MADE UNLESS A REASONABLE EXPECTATION EXISTS THAT PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES.

THE CONTRACTING OFFICER'S DETERMINATION WAS REFERRED TO THE CONTRACT REVIEW BOARD ON NOVEMBER 24, 1970, FOR APPROVAL, AND FOR SUBSEQUENT REFERRAL TO THE SMALL BUSINESS SPECIALIST (SBS) FOR CONCURRENCE. CONCURRENCE OF THE SBS COULD NOT BE OBTAINED ON THE SAME DAY THE BOARD APPROVED THE DETERMINATION TO CANCEL THE SET-ASIDE, SINCE THE SBS HAD BEEN VERBALLY INFORMED EARLIER THAT DAY BY SERVRITE THAT IT DID INTEND TO SUBMIT A PROPOSAL, AND IT WAS THE OPINION OF THE SBS THAT PROPOSALS FROM TWO SMALL BUSINESS FIRMS WOULD SATISFY THE REQUIREMENTS OF ASPR 1 706.5(A). THEREAFTER, THERE WAS CONSIDERABLE DISCUSSION, BOTH FORMALLY AND INFORMALLY, AMONG THE COGNIZANT NAVAL PERSONNEL AS TO HOW TO BEST RESOLVE THE CONTROVERSY. ON DECEMBER 4, 1970, A CONFERENCE TELEPHONE CALL WAS HELD AMONG ALL OF THE INTERESTED NAVY OFFICIALS, AT THE CONCLUSION OF WHICH NSC NORVA WAS ADVISED THAT IT WAS THE OPINION OF THE ASSISTANT SECRETARY OF THE NAVY (I&L) FOR SMALL BUSINESS THAT THE RFP SHOULD REMAIN A TOTAL SET-ASIDE FOR SMALL BUSINESS. THE CONTRACTING OFFICER ACCEPTED THE ADVICE AND RECOMMENDATION OF HIGHER AUTHORITY AND CHOSE NOT TO CANCEL THE SET-ASIDE. IN THIS CONNECTION, YOU COMPLAIN THAT THE DISPUTE SHOULD HAVE BEEN SETTLED BY DECISION OF THE HEAD OF THE PROCURING ACTIVITY, RATHER THAN BY THE ASSISTANT SECRETARY OF THE NAVY, AND YOU REFER TO THE PROVISIONS OF ASPR 1 706.3(F) AND 1-704.3(A). PARAGRAPH 1-704.3(A) OF ASPR PROVIDES THAT THE HEAD OF THE PROCURING ACTIVITY FOR THE DEPARTMENT OF THE NAVY SHALL APPOINT THE SMALL BUSINESS SPECIALISTS, WHO ARE RESPONSIBLE DIRECTLY TO SUCH APPOINTING AUTHORITY. IN THOSE CASES WHERE THE SMALL BUSINESS SPECIALIST AND THE CONTRACTING OFFICER DISAGREE REGARDING A WITHDRAWAL OR MODIFICATION OF A SET-ASIDE DETERMINATION, ASPR 1-706.3(F) PROVIDES THAT THE SMALL BUSINESS SPECIALIST MAY APPEAL IN WRITING TO THE APPOINTING AUTHORITY FOR DECISION, WHICH DECISION SHALL BE FINAL. AS DISCLOSED UNDER THE REPORTED FACTS, THE CONTRACTING OFFICER FINALLY CHOSE NOT TO DISAGREE WITH THE SMALL BUSINESS SPECIALIST. WOULD THEREFORE APPEAR THAT THE CITED REGULATIONS DID NOT COME IN TO PLAY REGARDLESS OF THE INFORMAL MANNER IN WHICH THIS DISPUTE WAS HANDLED, AND WE FAIL TO SEE HOW THESE FACTORS WOULD IN ANY WAY AFFECT THE VALIDITY OF THE DECISIONS MADE. AT BEST, IT IS EVIDENCE TO BE CONSIDERED IN OUR RESOLUTION OF THE ISSUES RAISED IN YOUR SECOND ARGUMENT DISCUSSED BELOW.

ASIDE FROM THE ISSUE DISCUSSED ABOVE, YOUR PROTESTS AGAINST THE SET ASIDES UNDER BOTH PROCUREMENTS ARE PREMISED ON THE FOLLOWING ARGUMENTS:

I

A SMALL BUSINESS SET-ASIDE IS NEITHER AUTHORIZED NOR APPROPRIATE FOR THE PROPOSED CONTRACTS, A SUBSTANTIAL PORTION OF WHICH IS TO BE PERFORMED OUTSIDE THE UNITED STATES, ITS POSSESSIONS, PUERTO RICO, AND THE TRUST TERRITORY OF THE PACIFIC ISLANDS.

IN SUPPORT OF THIS ARGUMENT, YOU CITE ASPR 1-700, WHICH PROVIDES IN FACT:

1-700 SCOPE OF PART. THIS PART, WHICH APPLIES ONLY IN THE UNITED STATES, ITS POSSESSIONS, PUERTO RICO, AND THE TRUST TERRITORY OF THE PACIFIC ISLANDS *** .

YOU CONTEND THAT THE MANIFEST INTENT OF THIS PROVISION IS TO LIMIT SMALL BUSINESS SET-ASIDES TO CONTRACTS THAT ARE TO BE PERFORMED WITHIN THE SPECIFIED GEOGRAPHICAL AREAS. WE HAVE CONSIDERED MOST CAREFULLY THE ARGUMENTS YOU HAVE ADVANCED TO SUPPORT SUCH A READING OF THE QUOTED ASPR PARAGRAPH, BUT WE ARE CONVINCED THAT THE INTENT OF THE SMALL BUSINESS ACT, 15 U.S.C. 631, ET SEQ., AND THE REGULATIONS PROMULGATED THEREUNDER IS TO BENEFIT AMERICAN SMALL BUSINESS CONCERNS, AND THE PLACE OF PERFORMANCE OF THE CONTRACTS AWARDED SUCH FIRMS IN THE FURTHERANCE OF THIS INTENT HAS NO BEARING PER SE ON THE LEGALITY OF THE DETERMINATION AS TO WHETHER A PARTICULAR PROCUREMENT SHOULD BE SET ASIDE IN WHOLE OR IN PART, FOR SMALL BUSINESS CONCERNS. FOR INSTANCE, ASPR 1-701(A)(1) PROVIDES IN PART:

"CONCERN" MEANS ANY BUSINESS ENTITY ORGANIZED FOR PROFIT WITH A PLACE OF BUSINESS IN THE UNITED STATES, ITS POSSESSIONS, PUERTO RICO, OR THE TRUST TERRITORY OF THE PACIFIC ISLANDS *** .

WE AGREE WITH YOUR OBSERVATION, AS SUPPORTED BY AN AFFIDAVIT OF THE VICE PRESIDENT OF FOREMOST, THAT CONTRACTS TO BE PERFORMED ABROAD ORDINARILY INVOLVE GREATER COMPLEXITY AND REQUIRE GREATER FINANCIAL RESOURCES AND DEPTH OF MANAGEMENT THAN THOSE TO BE PERFORMED IN THE UNITED STATES, ESPECIALLY IN THE NAPLES PROCUREMENT, WHICH WILL REQUIRE A MAJOR FINANCIAL INVESTMENT BY THE SUCCESSFUL OFFEROR TO ESTABLISH A CONTRACTOR-OPERATED PLANT ON ITALIAN SOIL TO COMMENCE PRODUCTION. HOWEVER, THESE FACTS ALONE WOULD NOT BE JUSTIFICATION, IN OUR VIEW, FOR NOT SETTING THE PROCUREMENT ASIDE, ASSUMING ALL OF THE CONDITIONS PRECEDENT HAVE BEEN MET; RATHER, THEY WOULD BE ADDITIONAL FACTORS FOR THE PROCUREMENT ACTIVITY TO CONSIDER IN SELECTING A RESPONSIBLE OFFEROR WHO COULD MEET SUCH REQUIREMENTS.

WE HAVE NO REASON TO BELIEVE THAT THE NAVY WILL NOT PROPERLY TAKE ALL OF THESE FACTS INTO ACCOUNT IN ITS FINAL SELECTION OF A CONTRACTOR, AND CONSEQUENTLY WE CAN PERCEIVE OF NO LEGAL BASIS TO INTERPOSE AN OBJECTION TO A SMALL BUSINESS SET-ASIDE THAT IS AWARDED WITHIN, BUT IS TO BE PERFORMED OUTSIDE, THE GEOGRAPHICAL AREAS ENUMERATED IN ASPR 1 700. THE FACT THAT THE HISTORY OF SMALL BUSINESS SET-ASIDES IS DEVOID OF PREVIOUS SET-ASIDES TO BE PERFORMED ON FOREIGN SOIL IN NO WAY AFFECTS SUCH A CONCLUSION OR OPERATES TO PROPERLY CLASSIFY THIS SOLICITATION AS A "FOREIGN" SET-ASIDE. IN THIS REGARD, IT IS REPORTED THAT THE COST AND PRICING DATA FURNISHED BY OFFERORS INDICATES THAT APPROXIMATELY 75 PERCENT OF THE COST OF PERFORMANCE WILL BE INCURRED IN THE UNITED STATES.

II

THE CONTRACTING OFFICER HAD NO BASIS FOR A REASONABLE EXPECTATION THAT BIDS WOULD BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARD WOULD BE MADE AT A REASONABLE PRICE.

ASIDE FROM THE REPORTED FACTS RELATED ABOVE, YOU CONTEND THAT THIS SECOND ARGUMENT IS SUPPORTED BY THE FACT THAT THE RFP'S REQUESTED THAT OFFERORS SUBMIT A DD FORM 633, AND PROVIDED THAT THE SUCCESSFUL OFFEROR MAY BE REQUIRED TO EXECUTE A CERTIFICATE OF CURRENT COST OR PRICING DATA; THAT ASPR 3-807.3 (AS REVISED BY DPC 74) PROVIDES THAT SUCH DOCUMENTS ARE REQUIRED IN CONTRACTS OF THIS TYPE "UNLESS THE PRICE NEGOTIATED IS BASED ON ADEQUATE PRICE COMPETITION *** ." THUS, SUCH DOCUMENTS NEED NOT HAVE BEEN REQUESTED BY THE CONTRACTING OFFICER UNLESS HE FELT THERE WOULD BE INADEQUATE COMPETITION.

SUCH REQUESTS FOR COST AND PRICING DATA ARE REQUIRED IN ALL NEGOTIATED PROCUREMENTS OVER $100,000 UNLESS THERE IS REASON TO BELIEVE IN ADVANCE THAT THERE WILL BE ADEQUATE PRICE COMPETITION. IF AFTER NEGOTIATIONS ARE COMMENCED IT APPEARS THAT THERE WILL NOT BE ADEQUATE PRICE COMPETITION, THE CONTRACTOR WOULD THEN BE REQUIRED TO EXECUTE THE REQUIRED CERTIFICATE. HOWEVER, WE DO NOT FEEL THAT A REQUEST FOR SUCH INFORMATION AS A MATTER OF FORM AFFECTS THE STANDARD OF REASONABLE EXPECTATION IMPOSED UPON THE CONTRACTING OFFICER UNDER ASPR 1-706.5, WHICH IS REQUIRED TO BE MADE IN ADVANCE OF THE ISSUANCE OF THE SOLICITATION. ASPR 1-706.5, PROVIDES IN PERTINENT PART AS FOLLOWS:

1-706.5 TOTAL SET-ASIDES

(A)(1) SUBJECT TO ANY APPLICABLE PREFERENCE FOR LABOR SURPLUS AREA SET- ASIDES AS PROVIDED IN 1-803(A)(II), THE ENTIRE AMOUNT OF AN INDIVIDUAL PROCUREMENT OR A CLASS OF PROCUREMENTS, INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION, SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION (SEE 1-701.1) 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. ***

OUR OFFICE HAS HELD THAT THE DETERMINATION AS TO WHETHER SUCH A REASONABLE EXPECTATION EXISTS IS WITHIN THE AMBIT OF ADMINISTRATIVE DISCRETION, AND WE WILL NOT SUBSTITUTE OUR JUDGMENT FOR THAT OF THE CONTRACTING OFFICER IN THE ABSENCE OF A CLEAR SHOWING OF ABUSE OF THE DISCRETION PERMITTED HIM. 45 COMP. GEN. 228 (1965). IN VIEW THEREOF, AND SINCE OFFERS WERE RECEIVED FROM TWO RESPONSIBLE SMALL BUSINESS CONCERNS, WE SEE NO VALID BASIS FOR DISAGREEING WITH THE DETERMINATION TO SET THE PROCUREMENTS ASIDE FOR SMALL BUSINESS CONCERNS.

III

BIDDERS OTHER THAN SMALL BUSINESSES, PARTICULARLY THOSE KNOWN TO BE INTERESTED IN THIS TYPE OF CONTRACT, HAVE NOT BEEN AFFORDED AN OPPORTUNITY TO PREPARE A PROPOSAL ON AN INFORMED BASIS.

YOU SUBMIT IN SUPPORT OF THIS ARGUMENT THAT A "COURTESY BID" SUBMITTED BY A LARGE FIRM MAY BE USED TO DETERMINE WHETHER THE LOW BID SUBMITTED BY A SMALL BUSINESS CONCERN IS REASONABLE, AND YOU CITE 49 COMP. GEN. 740, APRIL 28, 1970, AS SUPPORT FOR SUCH A PROPOSITION. HOWEVER, YOU CONTEND IT WAS IMPOSSIBLE FOR ANY LARGE FIRM (AND, INDEED, DIFFICULT FOR ANY FIRM) TO SUBMIT A PROPOSAL ON AN INFORMED BASIS SINCE THE SOLICITATION WAS ANNOUNCED IN THE COMMERCE BUSINESS DAILY ON NOVEMBER 17, 1970, PROVIDING FOR A PREPROPOSAL CONFERENCE IN NORFOLK ON NOVEMBER 20, 1970, AND SET THE DUE DATE FOR PROPOSALS AS JANUARY 5, 1971.

IN 49 COMP. GEN. 740, APRIL 28, 1970, WE HELD THAT A COURTESY BID IS A FACTOR TO BE CONSIDERED IN DETERMINING WHETHER BID PRICES RECEIVED FROM SMALL BUSINESS CONCERNS WERE UNREASONABLE. THAT DECISION DID NOT OVERRULE 45 COMP. GEN. 228 (1965), IN WHICH WE HELD THAT THE FACT THAT LOWER BIDS MAY BE EXPECTED FROM LARGE BUSINESS CONCERNS IS NOT A SIGNIFICANT FACTOR IN DETERMINING WHETHER A PROCUREMENT SHOULD BE SET ASIDE FOR SMALL BUSINESS PARTICIPATION ONLY. WHILE COURTESY BIDS MAY BE A FACTOR IN DETERMINING WHETHER PRICES OFFERED ARE REASONABLE, WE ALSO BELIEVE THAT THE RECEIPT OF LOWER PRICES FROM FIRMS WHICH ARE INELIGIBLE FOR AWARD IS INSUFFICIENT EVIDENCE STANDING ALONE TO REQUIRE A CONCLUSION THAT THE PRICES SUBMITTED BY ELIGIBLE BIDDERS ARE UNREASONABLE. 46 COMP. GEN. 102, 106 (1966); B-168534(1)(2), JANUARY 16, 1970. WE AGREE THAT THE SCHEDULING OF THE PREPROPOSAL CONFERENCE ONLY 3 DAYS AFTER ANNOUNCEMENT OF THE SOLICITATION WAS PERHAPS TOO BRIEF A PERIOD, BUT SINCE IT IS ADMITTED THAT ONE OF YOUR SUBSIDIARIES WAS PROMPTLY FURNISHED A SOLICITATION PACKAGE FOR THE NAPLES PROCUREMENT AND ATTENDED THE PREPROPOSAL CONFERENCE FOR THE ROTA PROCUREMENT, IT WOULD APPEAR THAT YOUR FIRM WAS GIVEN JUST AS MUCH OPPORTUNITY TO SUBMIT PROPOSALS ON AN INFORMED BASIS AS ANY OF THE OTHER POTENTIAL OFFERORS.

IN VIEW OF THE FOREGOING, WE SEE NO VALID BASIS FOR OBJECTION TO THE PROCEDURES FOLLOWED IN THESE PROCUREMENTS, OR TO ANY AWARDS WHICH MAY BE MADE THEREUNDER TO THE LOW RESPONSIBLE OFFERORS.

ACCORDINGLY, YOUR PROTESTS ON BEHALF OF FOREMOST ARE DENIED.