B-173016, JUL 26, 1971, 51 COMP GEN 65

B-173016: Jul 26, 1971

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IS LEGALLY PERMISSIBLE FOR. THERE IS NO PROVISION IN THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) FOR DEBARRING THE PRODUCTS OF A DEBARRED FIRM OR INDIVIDUAL. THE DECISION TO INCLUDE AFFILIATES IN A DEBARMENT IS NOT AUTOMATIC BUT IS AN INDIVIDUAL DETERMINATION TO BE MADE ON A CASE BY CASE BASIS. BIDDERS - DEBARMENT - CONTRACT AWARD ELIGIBILITY - BUSINESS AFFILIATES THE FACT THAT A BIDDER UNDER AN INVITATION FOR BIDS (IFB) FOR GLOBE VALVES IS AN AFFILIATE OF A DEBARRED FIRM DOES NOT PRECLUDE THE AWARD OF A CONTRACT TO THE AFFILIATE. WHERE THE ADMINISTRATIVE DETERMINATION NOT TO EXTEND THE DEBARMENT OF THE PRINCIPAL TO THE AFFILIATE - A DISCRETIONARY DETERMINATION UNDER PARAGRAPH 1-604 OF THE ARMED SERVICES PROCUREMENT REGULATION - WAS MADE WITH FULL KNOWLEDGE OF THE RELATIONSHIP AND ONLY AFTER AN EXTENSIVE PREAWARD SURVEY THAT FOUND THE PRODUCTION FACILITIES.

B-173016, JUL 26, 1971, 51 COMP GEN 65

BIDDERS - DEBARMENT - PRODUCT STATUS THE SALE TO THE GOVERNMENT OF THE PRODUCTS OF A DEBARRED FIRM THROUGH AN AFFILIATED COMPANY, A LICENSEE, OR A DISTRIBUTOR, IS LEGALLY PERMISSIBLE FOR, WHILE A FIRM OR INDIVIDUAL MAY BE DEBARRED, THERE IS NO PROVISION IN THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) FOR DEBARRING THE PRODUCTS OF A DEBARRED FIRM OR INDIVIDUAL, AND ALTHOUGH UNDER ASPR 1- 604.2(B) ALL KNOW AFFILIATES OF A DEBARRED CONCERN OR INDIVIDUAL MAY ALSO BE DEBARRED, THE DECISION TO INCLUDE AFFILIATES IN A DEBARMENT IS NOT AUTOMATIC BUT IS AN INDIVIDUAL DETERMINATION TO BE MADE ON A CASE BY CASE BASIS. BIDDERS - DEBARMENT - CONTRACT AWARD ELIGIBILITY - BUSINESS AFFILIATES THE FACT THAT A BIDDER UNDER AN INVITATION FOR BIDS (IFB) FOR GLOBE VALVES IS AN AFFILIATE OF A DEBARRED FIRM DOES NOT PRECLUDE THE AWARD OF A CONTRACT TO THE AFFILIATE, WHERE THE ADMINISTRATIVE DETERMINATION NOT TO EXTEND THE DEBARMENT OF THE PRINCIPAL TO THE AFFILIATE - A DISCRETIONARY DETERMINATION UNDER PARAGRAPH 1-604 OF THE ARMED SERVICES PROCUREMENT REGULATION - WAS MADE WITH FULL KNOWLEDGE OF THE RELATIONSHIP AND ONLY AFTER AN EXTENSIVE PREAWARD SURVEY THAT FOUND THE PRODUCTION FACILITIES, TECHNICAL AND QUALITY CAPABILITIES OF THE AFFILIATE TO BE ADEQUATE, AS THE PURPOSE OF DEBARMENT IS NOT TO PUNISH BUT TO PROTECT THE INTERESTS OF THE UNITED STATES. FURTHERMORE, THE REASON FOR THE DEBARRED CORPORATION ESTABLISHING THE AFFILIATE WAS TO EFFECT A SETTLEMENT WITH ITS CREDITORS BY ASSIGNING THE LEASE, SALE, AND LICENSING AGREEMENTS WITH THE AFFILIATE TO THE CREDITORS. BIDDERS DEBARMENT - TYPES OF DEBARMENT THE DEBARMENT OF FIRMS OR INDIVIDUALS FROM SECURING GOVERNMENT CONTRACTS ARE OF TWO TYPES - BY STATUTE OR REGULATION - NEITHER OF WHICH DEFINE THE TERM "DEBARRED." HOWEVER, THE GROUNDS FOR LISTING A FIRM OR INDIVIDUAL ON THE JOINT CONSOLIDATED LIST AND THE CONSEQUENCES THEREOF ARE SET FORTH IN DETAIL IN PART 6 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). ADMINISTRATIVE DEBARMENT OF A FIRM OR INDIVIDUAL UNDER ASPR 1-604 MAY BE AUTHORIZED AT THE DISCRETION OF THE SECRETARY OF EACH DEPARTMENT OR BY HIS AUTHORIZED REPRESENTATIVE IN THE PUBLIC INTEREST. THE REGULATION IS NOT BASED ON A SPECIFIC STATUTE DEALING WITH DEBARMENT, BUT IS IN IMPLEMENTATION OF THE GENERAL AUTHORITY TO CONTRACT CONTAINED IN THE ARMED SERVICES PROCUREMENT ACT OF 1947, AS AMENDED (41 U.S.C. 151).

TO THE DENCO VALVE COMPANY, JULY 26, 1971:

WE REFER TO YOUR TELEFAX OF MAY 20, 1971, AND YOUR LETTER OF MAY 27, 1971, RELATING TO YOUR PROTEST UNDER IFB N00104-71-B-1008 AND IFB N00104- 71-B-1345, BOTH ISSUED BY THE NAVY SHIPS PARTS CONTROL CENTER, MECHANICSBURG, PENNSYLVANIA.

THE INVITATIONS WERE ISSUED ON DECEMBER 29, 1970, AND FEBRUARY 18, 1971, FOR QUANTITIES OF 39 AND 16 OF TWO TYPES OF GLOBE VALVES, WITH BID OPENINGS SET FOR JANUARY 27, 1971, AND MARCH 19, 1971, RESPECTIVELY. BIDS WERE RECEIVED AS FOLLOWS:

IFB N00104-71-B-1008

PRES. TOTAL

COMPANY U/PRICE & PKG. DATA AMOUNT

MINDECO CORP. $83.50 $1.50 INCL. $3,315.00

DENCO VALVE CORP. 135.03 NC INCL. 5,266.17

CRANE CO. 165.00 1.50 $110.00 6,603.50

IFB N00104-71-B-1345

PRES. TOTAL

COMPANY U/PRICE & PKG. DATA AMOUNT

CONTROLLED PRODUCTION $108.78 $1.50$1,746.48

DENCO VALVE CORP. 320.00 NC 5,120.00

DRESSER INDUSTRIES 326.16 INCL. 5,218.56

CRANE CO. 356.50 2.00 5,736.00

BY LETTER OF MARCH 23, 1971, YOU PROTESTED TO THE CONTRACTING OFFICER AGAINST ANY AWARD TO CONTROLLED PRODUCTION, INC. (CPI) AND MINDECO CORPORATION UNDER THE TWO INVITATIONS, THE BASIS FOR YOUR PROTEST WAS THAT CPI IS CLOSELY RELATED TO WESTERN AFFILIATED ENGINEERING COMPANY (WAECO) AND MANUFACTURES VALVES UNDER A LICENSE AGREEMENT WITH WAECO. YOU CONTEND THAT SINCE WAECO IS CURRENTLY DEBARRED FROM RECEIVING GOVERNMENT CONTRACTS, ITS PRODUCTS SHOULD ALSO BE DEBARRED. YOU FURTHER CONTEND THAT SINCE MINDEO IS A DISTRIBUTOR FOR CPI, ITS PRODUCTS SHOULD BE DEBARRED FOR THE SAME REASON.

YOUR PROTEST AS REFERRED TO THE DEPARTMENT OF THE NAVY, OFFICER OF THE CHIEF OF NAVAL MATERIAL, BY THE CONTRACTING OFFICER. BY LETTER OF MAY 18, 1971, THE CONTRACTING OFFICER ADVISED YOU OF THE RESPONSE FROM THAT OFFICE, STATING THAT THE JOINT CONSOLIDATED LIST OF DEBARRED, INELIGIBLE AND SUSPENDED CONTRACTORS CONTAINS A LISTING OF WAECO AND INCLUDES A FORMER EMPLOYEE OF THAT COMPANY, BRADFORD PREECE, BUT LISTS NO OTHER INDIVIDUAL OR CORPORATE AFFILIATE OF WAECO. THE PRESIDENT OF BOTH WAECO AND CPI, MR. DARRELL D. ROBISON, IS NOT INCLUDED IN THE DEBARMENT LISTING NOR IS MINDECO LISTED. CONSEQUENTLY THE DEBARMENT OF WAECO AS NOT CONSTRUED TO EXTEND TO EITHER CPI OR MINDECO AND AWARDS WERE MADE TO THOSE TWO FIRMS ON MAY 18, 1971.

THE REPORT FROM THE DEPARTMENT OF THE NAVY, NAVAL SUPPLY SYSTEMS COMMAND, IN RESPONSE TO YOUR PROTEST TO OUR OFFICE SHOWS THAT PRIOR TO AWARD, A PREAWARD SURVEY TEAM FOUND THE PRODUCTION FACILITIES, TECHNICAL AND QUALITY CAPABILITIES OF CPI TO BE ADEQUATE TO PERFORM WITHIN THE REQUIREMENTS OF THE IFBS IN QUESTION. THE REPORT FURTHER SHOWS THAT BOTH WAECO AND CPI ARE OWNED BY MR. DARRELL D. ROBISON, HIS WIFE, ALLENE ROBISON, AND HIS MOTHER, RUTH ROBISON, NONE OF WHOM ARE LISTED AS BEING DEBARRED. THE REPORT ALSO CONTAINS COPIES OF A LEASE AGREEMENT FOR THE LEASE OF CERTAIN EQUIPMENT BY WAECO TO CPI, A SALES AGREEMENT FOR THE SALE OF CERTAIN CURRENT ASSETS OF WAECO TO CPI, AND A LICENSE AGREEMENT WHEREBY WAECO GRANTED A NONEXCLUSIVE LICENSE TO CPI TO MANUFACTURE CERTAIN HIGH PRESSURE VALVES FOR A PERIOD OF 5 YEARS. THE REPORT INDICATES THAT WAECO HAS BEEN NEGOTIATING TO SELL ITS LAND, BUILDING AND MOST OF ITS PRODUCTIVE EQUIPMENT, WHICH IS NOT RELATED TO HIGH PRESSURE VALVES, TO ANOTHER FIRM.

THE REPORT ALSO CONTAINS AN ASSIGNMENT FOR BENEFIT OF CREDITORS OF WAECO WHICH RECITES THAT THE COMPANY IS IN SERIOUS FINANCIAL DIFFICULTY AND HAS BEEN UNABLE TO PAY THE CLAIMS AND DEMANDS OF ITS CREDITORS AS THEY MATURE. THE LEASE, LICENSING AND SALES AGREEMENTS WERE ALL ASSIGNED BY WAECO TO THE INTER MOUNTAIN ASSOCIATION OF CREDIT MEN FOR THE BENEFIT OF WAECO'S CREDITORS.

YOUR PROTEST TO OUR OFFICE RAISES FOUR QUESTIONS WHICH YOU FEEL WERE NOT ANSWERED BY THE DECISION OF THE CONTRACTING OFFICER IN HIS LETTER OF MAY 18, 1971. YOUR FIRST THREE QUESTIONS ARE ESSENTIALLY ONE QUESTION DEALING WITH THE STATUS OF PRODUCTS OF A DEBARRED COMPANY AND WHETHER IT IS LEGALLY PERMISSIBLE FOR A DEBARRED COMPANY TO SELL ITS PRODUCTS TO THE GOVERNMENT THROUGH AN AFFILIATED COMPANY, A LICENSE OR DISTRIBUTOR. YOUR FOURTH QUESTION ASKS FOR A DEFINITION OF THE TERM "DEBARRED" AS IT RELATES TO THE JOINT CONSOLIDATED LIST OF DEBARRED, INELIGIBLE OR SUSPENDED CONTRACTORS.

WITH RESPECT TO YOUR FOURTH QUESTION, DEBARMENTS ARE OF TWO TYPES, THOSE BASED ON SPECIFIC STATUTORY AUTHORITY AND THOSE BASED ON REGULATIONS. PRECISE DEFINITION OF THE TERM "DEBARRED" IS FOUND IN EITHER STATUTES OR REGULATIONS, BUT THE GROUNDS FOR LISTING A FIRM OR INDIVIDUAL ON THE JOINT CONSOLIDATED LIST AND THE CONSEQUENCES THEREOF ARE SET FORTH IN DETAIL IN PART 6 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR).

THE RECORD BEFORE US INDICATES THAT WAECO'S DEBARMENT WAS AN ADMINISTRATIVE DEBARMENT IN ACCORD WITH THE PROVISIONS OF ASPR 1-604, WHICH AUTHORIZES THE SECRETARY OF EACH DEPARTMENT OR HIS AUTHORIZED REPRESENTATIVE TO DEBAR IN THE PUBLIC INTEREST A FIRM OR INDIVIDUAL FOR ANY OF THE CAUSES ENUMERATED THEREIN. THE DECISION TO DEBAR IS DISCRETIONARY WITH THE SECRETARY. THE REGULATION IS NOT BASED ON A SPECIFIC STATUTE DEALING WITH DEBARMENT, BUT IS IN IMPLEMENTATION OF THE GENERAL AUTHORITY TO CONTRACT CONTAINED IN THE ARMED SERVICES PROCUREMENT ACT OF 1947, AS AMENDED, 41 U.S.C. 151 (NOW 10 U.S.C.2301 ET SEQ.).

WHILE A FIRM OR INDIVIDUAL MAY BE DEBARRED, THERE IS NO PROVISION IN ASPR FOR DEBARRING THE PRODUCTS OF A DEBARRED FIRM OR INDIVIDUALS. ASPR 1- 604.2(B) PROVIDES THAT ALL KNOWN AFFILIATES OF A DEBARRED CONCERN OR INDIVIDUAL MAY ALSO BE DEBARRED. BUSINESS CONCERNS ARE DEFINED AS AFFILIATES OF EACH OTHER WHEN ONE CONCERN OR INDIVIDUAL CONTROLS OR HAS THE POWER TO CONTROL ANOTHER, OR A THIRD CONTROLS OR HAS THE POWER TO CONTROL BOTH. THE DECISION TO INCLUDE AFFILIATES IN A DEBARMENT IS NOT AUTOMATIC BUT IS AN INDIVIDUAL DETERMINATION TO BE MADE ON A CARE BY CASE BASIS.

AS APPLIED TO THE FACTS IN THE PRESENT CASE, THESE REGULATIONS MEAN THAT WAECO'S PRODUCTS ARE NOT DEBARRED SINCE THERE IS NO PROVISION TO DEBAR PRODUCTS, ONLY FIRMS OR INDIVIDUALS. CONSEQUENTLY, THERE IS NO RESTRICTION ON THE MINDECO CORPORATION SELLING THE PRODUCTS AS A DISTRIBUTOR. YOUR PROTEST AGAINST AWARD TO MINDECO IS THEREFORE, WITHOUT MERIT.

WITH RESPECT TO CPI, THAT COMPANY IS CLEARLY AN AFFILIATE OF WAECO UNDER THE DEFINITION IN ASPR, SINCE OWNERSHIP OF THE TWO CORPORATIONS IS IDENTICAL. HOWEVER, THE CHIEF OF NAVAL MATERIAL, THE AUTHORIZED REPRESENTATIVE OF THE SECRETARY OF THE NAVY, MADE A DETERMINATION THAT THE DEBARMENT OF WAECO SHOULD NOT BE CONSTRUED TO EXTEND TO CPI. THIS DETERMINATION WAS MADE AFTER AN EXTENSIVE PREAWARD SURVEY AND WITH FULL KNOWLEDGE OF THE RELATIONSHIP BETWEEN THE TWO CORPORATIONS. IN THIS REGARD, IT SHOULD BE NOTED THAT THE PURPOSE OF DEBARMENT AS SET FORTH IN ASPR 1-604 IS NOT TO PUNISH A FIRM OR INDIVIDUAL BUT RATHER TO PROTECT THE INTEREST OF THE GOVERNMENT. IN VIEW THEREOF, AND SINCE THE DETERMINATION IS A DISCRETIONARY ONE THAT IS SPECIFICALLY AUTHORIZED IN ASPR, WE ARE NOT INCLINED TO DISAGREE WITH THE CONCLUSION OF THE CHIEF OF NAVAL MATERIAL.

ALTHOUGH YOU CONTEND THAT ORGANIZATION OF CPI WAS MERELY A DEVICE TO CIRCUMVENT THE DEBARRED STATUS OF WAECO, THE INFORMATION INCLUDED IN THE NAVY'S REPORT SUGGESTS THAT AN EQUALLY VALID REASON FOR ESTABLISHING CPI WAS A DESIRE ON THE PART OF WAECO TO EFFECT A SETTLEMENT WITH ITS CREDITORS BY ASSIGNING THE LEASE, SALES AND LICENSING AGREEMENTS WITH CPI TO THE CREDIT ASSOCIATION FOR THE BENEFIT OF CREDITORS OF WAECO.

FOR THE REASONS STATED, WE FIND NO LEGAL BASIS FOR DISQUALIFYING EITHER CPI OR MINDECO FROM RECEIVING GOVERNMENT CONTRACTS, AND YOUR PROTEST AGAINST AWARDS TO THOSE TWO FIRMS IS THEREFORE DENIED.