B-171622, MAY 13, 1971, 50 COMP GEN 799

B-171622: May 13, 1971

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THE EVALUATION OF THE LOW BID FOR THE PURPOSE OF THE CERTIFICATE OF COMPETENCY (COC) PROCEDURES ON THE BASIS OF THE INITIAL QUANTITY TO BE PURCHASED RATHER THAN THE ESTIMATED QUANTITY TO BE ORDERED DURING THE CONTRACT PERIOD WAS INCONSISTENT WITH THE USE OF THE ESTIMATED QUANTITY TO DETERMINE THE LOW BIDDER AND TO PERFORM THE PREAWARD SURVEY. THE PROCEDURE IN ASPR 1-705.4(C)(VI) SHOULD BE IMPLEMENTED AND IF SBA DETERMINES THAT A COC WOULD HAVE BEEN GRANTED AT THE TIME OF AWARD AND THAT SUCH DETERMINATION IS STILL VALID. 1971: REFERENCE IS MADE TO A LETTER DATED FEBRUARY 3. WAS A 100 PERCENT SMALL BUSINESS SET-ASIDE FOR HYDRAULIC SYSTEM OIL TANKS. IT FURTHER PROVIDED THAT AN ESTIMATED QUANTITY OF 48 WAS EXPECTED TO BE ORDERED DURING THE CONTRACT PERIOD.

B-171622, MAY 13, 1971, 50 COMP GEN 799

CONTRACTS - REQUIREMENTS - SMALL BUSINESS SET-ASIDES - CERTIFICATE OF COMPETENCY PROCEDURE UNDER A SMALL BUSINESS SET-ASIDE FOR THE AWARD OF A REQUIREMENTS TYPE CONTRACT, THE EVALUATION OF THE LOW BID FOR THE PURPOSE OF THE CERTIFICATE OF COMPETENCY (COC) PROCEDURES ON THE BASIS OF THE INITIAL QUANTITY TO BE PURCHASED RATHER THAN THE ESTIMATED QUANTITY TO BE ORDERED DURING THE CONTRACT PERIOD WAS INCONSISTENT WITH THE USE OF THE ESTIMATED QUANTITY TO DETERMINE THE LOW BIDDER AND TO PERFORM THE PREAWARD SURVEY, AND RESULTED IN THE ERRONEOUS REFUSAL OF THE CONTRACTING OFFICER TO REFER THE LOW BIDDER'S UNFAVORABLE PREAWARD SURVEY TO THE SMALL BUSINESS ADMINISTRATION (SBA) AS REQUIRED BY PARAGRAPH 1-705(C) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). THEREFORE, THE PROCEDURE IN ASPR 1-705.4(C)(VI) SHOULD BE IMPLEMENTED AND IF SBA DETERMINES THAT A COC WOULD HAVE BEEN GRANTED AT THE TIME OF AWARD AND THAT SUCH DETERMINATION IS STILL VALID, THE CONTRACT AWARDED SHOULD BE CANCELED AND AN AWARD MADE TO THE LOW BIDDER.

TO THE SECRETARY OF THE ARMY, MAY 13, 1971:

REFERENCE IS MADE TO A LETTER DATED FEBRUARY 3, 1971, FROM HEADQUARTERS, UNITED STATES ARMY MATERIEL COMMAND, REFERENCE AMCGC-P, FURNISHING OUR OFFICE A REPORT ON THE PROTEST OF STAMFORD METAL SPECIALTY COMPANY, INCORPORATED, AGAINST THE AWARD OF A CONTRACT TO ANOTHER FIRM UNDER INVITATION FOR BIDS NO. DAAH01-71-B-0250, ISSUED BY THE REDSTONE ARSENAL, ALABAMA.

THE SUBJECT SOLICITATION, ISSUED OCTOBER 5, 1970, WAS A 100 PERCENT SMALL BUSINESS SET-ASIDE FOR HYDRAULIC SYSTEM OIL TANKS. THE INVITATION PROVIDED THAT A "REQUIREMENTS" TYPE CONTRACT WOULD BE AWARDED WITH AN INITIAL QUANTITY OF 14 PURCHASED UPON DATE OF AWARD; IT FURTHER PROVIDED THAT AN ESTIMATED QUANTITY OF 48 WAS EXPECTED TO BE ORDERED DURING THE CONTRACT PERIOD.

STAMFORD METAL SPECIALTY COMPANY, INCORPORATED (STAMFORD), WAS DETERMINED TO BE THE LOW BIDDER. HOWEVER, BASED UPON AN UNFAVORABLE PREAWARD SURVEY, THE CONTRACTING OFFICER DETERMINED STAMFORD TO BE NONRESPONSIBLE IN ACCORDANCE WITH ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-903.1(II) AND 1-903.1(III). THE SURVEY CONCLUDED THAT STAMFORD HAD AN UNSATISFACTORY QUALITY ASSURANCE CAPABILITY AND AN UNSATISFACTORY PERFORMANCE RECORD. THE CONTRACTING OFFICER'S STATEMENT DATED JANUARY 13, 1971, STATES IN THIS REGARD, AS FOLLOWS:

3. THE SURVEY POINTS OUT THAT THE REQUIRED ITEM IS RELATIVELY COMPLEX IN NATURE AND THE INSPECTION SYSTEM REQUIRED IS IN ACCORDANCE WITH SPECIFICATION MIL-I-45208 TO ASSURE THE RECEIPT OF A QUALITY ITEM. THE RECORDS AT DCASR, NEW YORK INDICATED THAT STAMFORD METAL SPECIALTY QUALITY PERFORMANCE RECORD FOR 1970 HAS BEEN UNSATISFACTORY. NINE (9) CUSTOMER COMPLAINTS (COMPLAINT REPORTS) HAVE BEEN INVESTIGATED SINCE 1 JANUARY 1970 AND ALL COMPLAINTS HAVE BEEN FOUND JUSTIFIED AND CONSISTENT. QUALITY DEFICIENCIES REPORTED INCLUDED DIMENSIONAL DEFECTS, IMPROPER ASSEMBLIES, NON-CONFORMING TORQUE REQUIREMENTS, DEFECTIVE LEATHER COMPONENTS, RUBBER MOLDING DEFECTS, FINISHES, BURNT SPOT WELDS, LOOSE WELDS, GENERAL WORKMANSHIP DETAILS AND PACKAGING. THE COMPANY'S INSPECTION SYSTEM AND GENERAL CONTROL EFFORT ARE ATTRIBUTABLE TO THE ABOVE NOTED DEFECTS. AREAS CONSIDERED OUT-OF CONTROL ARE RECEIVING, IN PROCESS AND FINAL INSPECTION, RECORDS WHICH DO NOT REFLECT TRUE PRODUCT QUALITY, MEASURING PROCEDURES, SPECIAL PROCESSES AND ESPECIALLY CORRECTIVE ACTION. THE SURVEY FURTHER STATES THAT THE COMPANY'S ATTENTION TO THE DEFICIENCIES OF THIS INSPECTION HAS BEEN DIRECTED ON A CONTINUING BASIS. ALTHOUGH STAMFORD METAL HAS MADE SOME CORRECTIVE ACTIONS, SUCH AS CHANGES IN SUPPLIERS WHO PRODUCE SOME OF THE DEFECTS AND SOME REORGANIZING OF THEIR MANAGEMENT STRUCTURE, NO SIGNIFICANT CHANGE HAS BEEN MADE THAT WOULD INFLUENCE OR IMPROVE THEIR INSPECTION SYSTEM. THE FIRM HAS MADE REPEATED PROMISES TO HIRE AN EXPERIENCE QUALITY CONTROL MANAGER WHO WOULD BE GIVEN THE FINAL QUALITY DECISION AUTHORITY, AND THE RESPONSIBILITY FOR ELIMINATING THE REPETITION PATTERN OF DEFECTIVENESS BEING GENERATED BY HIS OPERATION. AS OF 4 DECEMBER 1970, THE FIRM IS STILL WITHOUT INSPECTION MANAGEMENT DESPITE PAST PROMISES AND NO DEFINITIVE PLAN HAS BEEN PRESENTED FOR OBTAINING APPROPRIATE QUALITY CONTROL PERSONNEL TO ASSURE COMPLIANCE WITH APPLICABLE CONTRACTUAL QUALITY REQUIREMENTS.

4. THE SURVEY ALSO STATES THAT STAMFORD METAL'S PRODUCTION RECORD IS UNSATISFACTORY. THE FIRM COMPLETED 33 CONTRACTS IN THE PAST YEAR, OF WHICH 19 WERE DELINQUENT. OF THE 19 DELINQUENCIES, NINE (9) WERE UNDER 30 DAYS LATE; SIX (6) WERE UNDER 60 DAYS LATE; THREE (3) WERE UNDER 90 DAYS LATE; AND ONE (1) WAS 120 DAYS LATE. THE COMPANY IS PRESENTLY PERFORMING ON 22 CONTRACTS, OF WHICH SIX (6) ARE DELINQUENT. ALL THESE DELINQUENCIES ARE ATTRIBUTABLE TO STAMFORD METAL SPECIALTY CO., INC.

STAMFORD CONTENDS THAT NOTWITHSTANDING THE UNFAVORABLE PREAWARD SURVEY, THE MATTER SHOULD HAVE BEEN REFERRED TO THE SMALL BUSINESS ADMINISTRATION (SBA) FOR CERTIFICATE OF COMPETENCY PROCEEDINGS. THIS ALLEGATION APPARENTLY IS BASED UPON ASPR 1-705(C) WHICH PROVIDES, IN PART, AS FOLLOWS:

IF A BID OR PROPOSAL OF A SMALL BUSINESS CONCERN IS TO BE REJECTED SOLELY BECAUSE THE CONTRACTING OFFICER HAS DETERMINED THE CONCERN TO BE NONRESPONSIBLE AS TO CAPACITY OR CREDIT, THE MATTER SHALL BE REFERRED TO THE APPROPRIATE SBA FIELD OFFICE HAVING AUTHORITY TO PROCESS THE REFERRAL IN THE GEOGRAPHICAL AREA INVOLVED. *** THIS PROCEDURE APPLIES ONLY TO PROPOSED AWARDS EXCEEDING $2500. FOR PROPOSED AWARDS EXCEEDING $2500, BUT NOT EXCEEDING $10,000, ITS USE IS WITHIN THE DISCRETION OF THE CONTRACTING OFFICER. ***

IT IS REPORTED THAT STAMFORD'S PRICE WAS $9,996 FOR THE GUARANTEED QUANTITY OF 14 UNITS AND $24,240 FOR THE ESTIMATED QUANTITY. THE ARMY REPORTS THAT THE CONTRACTING OFFICER INTERPRETED THE WORDS "PROPOSED AWARDS" AS USED IN THE ABOVE-QUOTED REGULATION TO APPLY ONLY TO THE FIRM QUANTITY AWARD (14 UNITS) AND NOT TO THE ESTIMATED QUANTITY (48 UNITS) BECAUSE THE GOVERNMENT IS UNDER NO OBLIGATION TO ORDER ANY ADDITIONAL UNITS OVER AND ABOVE THE GUARANTEED MINIMUM. SINCE THE PRICE FOR THE GUARANTEED QUANTITY TO BE PURCHASED UNDER THE CONTRACT WAS BELOW THE ASPR $10,000 THRESHOLD, IT IS STATED THAT THE CONTRACTING OFFICER EXERCISED HIS DISCRETION NOT TO REFER THE QUESTION OF STAMFORD'S RESPONSIBILITY TO SBA. IT IS REPORTED THAT AWARD WAS MADE TO FLOWDYNE CORPORATION, THE NEXT LOW RESPONSIVE, RESPONSIBLE BIDDER.

IT IS STAMFORD'S CONTENTION THAT THE DOLLAR VALUE OF THE SUBJECT PROCUREMENT EXCEEDS THE $10,000 LIMIT SET FORTH IN ASPR 1-705(C) AND REFERRAL TO SBA WAS THEREFORE REQUIRED PRIOR TO THE CONTRACTING OFFICER'S DETERMINATION OF NONRESPONSIBILITY. THIS ARGUMENT APPARENTLY IS BASED UPON THE CONCLUSION THAT THE $24,240 BID PRICE FOR THE ESTIMATED REQUIREMENTS UNDER THE CONTRACT SHOULD BE DETERMINATIVE OF THE AMOUNT OF THE PROPOSED AWARD AND NOT THE BID PRICE FOR THE BASE GUARANTEED QUANTITY.

ASPR 3-409.2(A) PROVIDES THAT IN A REQUIREMENTS CONTRACT AN ESTIMATED TOTAL QUANTITY IS STATED FOR THE INFORMATION OF PROSPECTIVE CONTRACTORS AND THAT SUCH ESTIMATE SHOULD BE AS REALISTIC AS POSSIBLE. AS STATED AT 47 COMP. GEN. 272, 274 (1967) THE INFORMATION AS TO ESTIMATED TOTAL QUANTITIES OF WORK IS IMPORTANT FOR A PROPER EVALUATION OF BIDS; IF ESTIMATED QUANTITIES USED FOR BID EVALUATION ARE DIFFERENT FROM ACTUAL ANTICIPATED NEEDS, THE POSSIBILITY ARISES THAT A BIDDER MAY BE FOUND LOW ON EVALUATION WHO IS NOT THE LOW BIDDER ON THE REAL REQUIREMENTS, OR THE BEST ESTIMATE THEREOF.

THE CONTRACTING OFFICER HAS STATED THAT STAMFORD WAS THE LOW EVALUATED BIDDER. THIS STATEMENT APPARENTLY IS BASED UPON THE TOTAL EVALUATED UNIT PRICE OF $570.10 (AS OPPOSED TO THE NEXT LOW OF $584.50) AS SHOWN ON THE ABSTRACT OF BIDS, DD FORM 1501. SECTION D-4 ON PAGE 16 OF THE SOLICITATION PROVIDES FOR PRICE EVALUATION OF BIDS AS FOLLOWS:

D-4. PRICE EVALUATION SHALL BE MADE AS FOLLOWS:

1. PRODUCTION QUANTITY EVALUATION:

THE UNIT PRICES WILL BE MULTIPLIED BY THE PERCENTAGES OF WEIGHT AS SET FORTH BELOW.

THE WEIGHTED UNIT PRICES FOR ALL RANGES WILL BE TOTALED WITH THE EVALUATED UNIT PRICE FOR FIRST ARTICLE (AS EVALUATED IN 2.B. BELOW), TO DETERMINE THE LOWEST BIDDER FOR AWARD PURPOSES ONLY. AWARD WILL BE MADE ON THE BASIS OF THE LOWEST EVALUATED TOTAL PRICE.

WEIGHT UNIT WEIGHTED UNIT

RANGE NR FACTOR TIMES PRICE PRICE

1. XX X $XX $XX

2. XX X $XX $XX

3. XX X $XX$XX

4. 10% X $XX $XX

5. 10% X $XX $XX

6. 20% X $XX $XX

7. 30% X $XX $XX

8. 30% X $XX $XX

TOTAL EVALUATED UNIT PRICE $XX

STAMFORD'S EVALUATED UNIT PRICE OF $570.10 WAS ARRIVED AT THROUGH THE ABOVE PROCEDURE. OBVIOUSLY, THE PRICE EVALUATION PROCEDURE WAS BASED UPON THE GOVERNMENT'S ESTIMATED REQUIREMENTS AND NOT THE GUARANTEED MINIMUM PURCHASE QUANTITY. WE NOTE THAT PREAWARD SURVEY PERFORMED BY DCASR, NEW YORK, WAS BASED UPON STAMFORD'S PRICE OF $24,240 FOR THE ESTIMATED REQUIREMENTS OF 48 UNITS.

ACCORDING TO THE TERMS OF THE INVITATION ITSELF, BIDS WERE TO BE EVALUATED AND THE CONTRACT AWARDED ON THE BASIS OF THE ESTIMATED REQUIREMENTS OF THE GOVERNMENT. AS ALREADY NOTED THE PREAWARD SURVEY WAS PERFORMED ON THE BASIS OF ESTIMATED REQUIREMENTS. ASPR AND PAST DECISIONS OF THIS OFFICE REQUIRE THAT ESTIMATES OF REQUIREMENTS BE AS REALISTIC AND ACCURATE AS POSSIBLE. SEE 36 COMP. GEN. 380, 385 (1956). THIS ASSURES A MEANINGFUL EVALUATION OF BIDS WHICH GIVES ALL PERSONS AN EQUAL RIGHT TO COMPETE FOR GOVERNMENT CONTRACTS, AND SECURES FOR THE GOVERNMENT THE BENEFITS WHICH FLOW FROM FREE AND UNRESTRICTED COMPETITION. IN THE INSTANT CASE THE EVALUATION BASED UPON ESTIMATED REQUIREMENTS MET THE STATED STANDARDS. WE BELIEVE THAT THE CONTRACTING OFFICER'S POSITION WITH RESPECT TO FORWARDING THE MATTER OF STAMFORD'S RESPONSIBILITY TO SBA IS INCONSISTENT WITH THE METHOD OF SOLICITING AND EVALUATING THE BIDS ON A REQUIREMENTS CONTRACT. THE PROCEDURES FOLLOWED IN THIS PROCUREMENT WERE ALL GEARED (AS THEY SHOULD HAVE BEEN) TO THE ESTIMATED REQUIREMENTS AND NOT THE GUARANTEED MINIMUM PURCHASE. IT APPEARS THAT THE CONTRACTING OFFICER'S REFUSAL TO FORWARD THE MATTER TO SBA WAS INCONSISTENT WITH THE REQUIREMENTS OF THE INVITATION.

FURTHER, WE BELIEVE THE CONTRACTING OFFICER'S POSITION IS INCONSISTENT WITH THE EXTENT OF THE GOVERNMENT'S OBLIGATION UNDER THE PROPOSED CONTRACT. THE SOLICITATION CALLED FOR A REQUIREMENTS TYPE CONTRACT WITH A MINIMUM PURCHASE OF 14 UNITS. UNDER THIS TYPE OF CONTRACT THE GOVERNMENT HAS A DUTY TO ORDER ALL ITS NEEDS FROM THE CONTRACTOR DURING THE CONTRACT PERIOD. IF THE GOVERNMENT'S NEEDS EXCEED 14 UNITS DURING THE CONTRACT PERIOD, THESE UNITS MUST BE ORDERED FROM THE CONTRACTOR; THE GOVERNMENT MAY NOT PURCHASE THESE UNITS ELSEWHERE. WE BELIEVE IT IS APPROPRIATE TO BASE THE DOLLAR VALUE ON THE ESTIMATED REQUIREMENTS AND NOT ON THE GUARANTEED MINIMUM PURCHASE AMOUNT.

WE NOTE, HOWEVER, THAT STAMFORD WAS DETERMINED NONRESPONSIBLE IN ACCORDANCE WITH ASPR 1-903.1(II) AND 1-903.1(III). ASPR 1-705.4(C)(VI) STATES THAT NONRESPONSIBILITY DETERMINATIONS PURSUANT TO 1-903.1(III) (PAST PERFORMANCE) AND 1-903.1(IV) (INTEGRITY) ARE NOT COVERED BY THE CERTIFICATE OF COMPETENCY PROCEDURE BUT MUST BE SUPPORTED BY "SUBSTANTIAL EVIDENCE DOCUMENTED IN THE CONTRACT FILES." WE HAVE HELD THAT A POOR RECORD OF PRIOR PERFORMANCE DOES NOT ESTABLISH A LACK OF PERSEVERANCE OR INTEGRITY; RATHER THE PROCURING ACTIVITY HAS THE BURDEN OF SHOWING BY SUBSTANTIAL EVIDENCE THAT THE BIDDER DID NOT TAKE DILIGENT AND AGGRESSIVE STEPS TO OVERCOME ITS DELIVERY PROBLEMS. 49 COMP. GEN. 600 (1970); B- 170224, OCTOBER 8, 1970.

ASPR 1-705.4(C)(VI) FURTHER PROVIDES FOR THE MATTER TO BE REFERRED TO SBA TO GIVE THAT AGENCY THE OPPORTUNITY TO APPEAL THE NEGATIVE DETERMINATION TO THE HEAD OF THE PROCURING AGENCY. THIS PROCEDURE WAS NOT FOLLOWED IN THE INSTANT CASE. THEREFORE, STEPS SHOULD BE TAKEN TO IMPLEMENT THE PROCEDURE IN ASPR 1-705.4(C)(VI) TO DETERMINE WHETHER A COC REFERRAL WAS REQUIRED. IN THE EVENT IT IS DETERMINED THAT A COC REFERRAL WAS REQUIRED, SUCH ACTION SHOULD BE IMPLEMENTED. IF SBA THEN WERE TO DETERMINE THAT A COC WOULD HAVE BEEN GRANTED AT THE TIME OF AWARD AND THAT SUCH DETERMINATION IS STILL VALID, THE CONTRACT WITH FLOWDYNE SHOULD BE CANCELED AND AWARD MADE TO STAMFORD.