B-174443, FEB 8, 1972

B-174443: Feb 8, 1972

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THE ESTABLISHMENT OF A LABOR SURPLUS SET-ASIDE IS REQUIRED BY ASPR 1-804.1 WHEN THE PROCUREMENT IS SEVERABLE AND RESPONSIBLE CONCERNS ARE EXPECTED TO QUALIFY. AWARD TO THE CHAMBERLAIN MANUFACTURING CORPORATION UNDER THE CONVERSION CLAUSE WAS THE LEAST COSTLY METHOD OF PROCUREMENT. THE PROTEST AGAINST AWARD OF THE PROCUREMENT FOR THE M151 WARHEAD TO ANY OTHER PRODUCER IS WITHOUT MERIT SINCE. THE ALLEGED RESTRICTION OF COMPETITION IN CONNECTION WITH THE PRODUCTION OF M229 AND M156 WARHEADS IS JUSTIFIED UNDER 10 U.S.C. 2304(A)(16). TO AIRPORT MACHINING CORPORATION: REFERENCE IS MADE TO YOUR LETTERS DATED OCTOBER 27 AND NOVEMBER 11. WERE CERTIFIED AS LABOR SURPLUS FIRMS. UNDER THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-804.1 A PORTION OF A PROCUREMENT SHALL BE SET ASIDE FOR LABOR SURPLUS AREA CONCERNS IF: "(I) THE PROCUREMENT IS SEVERABLE INTO TWO OR MORE ECONOMIC PRODUCTION RUNS OR REASONABLE LOTS.

B-174443, FEB 8, 1972

BID PROTEST - UNFAIR TREATMENT - RESTRICTION OF COMPETITION DECISION DENYING PROTESTS OF AIRPORT MACHINING CORPORATION AGAINST ALLEGED UNFAIR TREATMENT, AWARD TO ANY OTHER BIDDER, AND RESTRAINT OF COMPETITION, UNDER RFPS ISSUED BY THE ARMY FOR THE PRODUCTION OF ROCKET WARHEADS. IT DOES NOT APPEAR THAT PROTESTANT HAS BEEN UNFAIRLY TREATED IN THE PROCUREMENT OF M151, M156, AND M229 WARHEADS. THE ESTABLISHMENT OF A LABOR SURPLUS SET-ASIDE IS REQUIRED BY ASPR 1-804.1 WHEN THE PROCUREMENT IS SEVERABLE AND RESPONSIBLE CONCERNS ARE EXPECTED TO QUALIFY. FURTHER, AWARD TO THE CHAMBERLAIN MANUFACTURING CORPORATION UNDER THE CONVERSION CLAUSE WAS THE LEAST COSTLY METHOD OF PROCUREMENT, CONSIDERING THE POSSIBLE EXPENSE TO THE GOVERNMENT OF TERMINATION FOR CONVENIENCE. THE PROTEST AGAINST AWARD OF THE PROCUREMENT FOR THE M151 WARHEAD TO ANY OTHER PRODUCER IS WITHOUT MERIT SINCE, UNDER PARAGRAPH 10(B) OF STANDARD FORM 33A, THE GOVERNMENT RESERVES THE RIGHT TO REJECT OFFERS SUBMITTED UNDER THE RFP PRIOR TO AWARD FOR ANY LEGITIMATE REASON. FINALLY, THE ALLEGED RESTRICTION OF COMPETITION IN CONNECTION WITH THE PRODUCTION OF M229 AND M156 WARHEADS IS JUSTIFIED UNDER 10 U.S.C. 2304(A)(16), WHICH ALLOWS PROCUREMENT AT HIGHER COST WHERE SEVERAL SOURCES OF SUPPLY SHOULD BE MAINTAINED IN THE INTERESTS OF INDUSTRIAL MOBILIZATION INCIDENT TO POSSIBLE NATIONAL EMERGENCY. IN VIEW OF THESE FACTS, NO BASIS EXISTS FOR OBJECTION TO THESE PROCUREMENT ACTIONS.

TO AIRPORT MACHINING CORPORATION:

REFERENCE IS MADE TO YOUR LETTERS DATED OCTOBER 27 AND NOVEMBER 11, 1971, WITH ENCLOSURES, PROTESTING (1) THE ALLEGED UNFAIR TREATMENT OF AIRPORT MACHINING CORPORATION (AIRPORT) BY THE UNITED STATES ARMY IN THE PROCUREMENT OF M151, M156, AND M229 WARHEADS FOR THE 2.75 INCH ROCKET SYSTEM, (2) THE AWARD TO ANY OTHER PRODUCER OF THE M151 WARHEAD UNDER REQUEST FOR PROPOSALS (RFP) DAAA09-72-R-0006 AND (3) THE ALLEGED RESTRICTION OF FREE COMPETITION UNDER RFP DAAA09-72-R-0008 FOR THE M229 WARHEAD AND RFP DAAA09-72-R-0009 FOR THE M156 WARHEAD.

YOU ALLEGE THE INCLUSION OF A LABOR SURPLUS SET-ASIDE IN RFP DAAA09 71-R- 0034, ISSUED AUGUST 17, 1970, FOR THE M151 WARHEAD, LOOKED LIKE A DELIBERATE ATTEMPT TO INSURE A CONTRACT FOR OTHER PRODUCERS WHO, UNLIKE AIRPORT, WERE CERTIFIED AS LABOR SURPLUS FIRMS.

UNDER THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1-804.1 A PORTION OF A PROCUREMENT SHALL BE SET ASIDE FOR LABOR SURPLUS AREA CONCERNS IF:

"(I) THE PROCUREMENT IS SEVERABLE INTO TWO OR MORE ECONOMIC PRODUCTION RUNS OR REASONABLE LOTS; AND

"(II) ONE OR MORE LABOR SURPLUS AREA CONCERNS ARE EXPECTED TO QUALIFY AS LABOR SURPLUS AREAS CONCERNS AND TO HAVE THE TECHNICAL COMPETENCY AND PRODUCTIVE CAPACITY TO FURNISH A SEVERABLE PORTION OF THE PROCUREMENT AT A REASONABLE PRICE."

IT WAS DETERMINED IN THIS INSTANCE THAT THE CRITERIA WERE SATISFIED AND THAT, PURSUANT TO EXPRESSED DEPARTMENT OF DEFENSE POLICY TO AID LABOR SURPLUS AREAS (SEE ASPR 1-802), A PORTION OF THE PROCUREMENT WAS SET ASIDE FOR LABOR SURPLUS AREA FIRMS. WHETHER THE CRITERIA ARE SATISFIED IN A GIVEN CASE IS LARGELY WITHIN THE DISCRETION OF THE CONTRACTING ACTIVITY. SEE 41 COMP. GEN. 302 (1961).

THE LABOR SURPLUS SET-ASIDE FOR 270,000 UNITS UNDER RFP DAAA09-71-R 0034 WAS AWARDED TO BATESVILLE MANUFACTURING COMPANY (BATESVILLE) WHO ALREADY HAD RECEIVED AN AWARD FOR 270,000 UNITS AS SECOND LOW OFFEROR ON THE NON SET-ASIDE PORTION OF THE PROCUREMENT. BATESVILLE WAS TO PRODUCE THE WARHEADS AT A RATE OF 90,000 PARTS PER MONTH FOR SIX MONTHS BUT WAS LATER REQUESTED TO SPREAD THE PRODUCTION OVER A TWELVE-MONTH PERIOD AT 45,000 PER MONTH.

YOU CONTEND THAT SINCE BATESVILLE NEEDED ASSISTANCE FROM AIRPORT ON A PRIOR 2.75 INCH WARHEAD CONTRACT CALLING FOR PRODUCTION AT THE RATE OF 50,000 PER MONTH, THE GOVERNMENT KNEW IT WAS IMPOSSIBLE FOR BATESVILLE TO DELIVER 90,000 UNITS PER MONTH AND TO SOLVE THIS PROBLEM THE GOVERNMENT FOUND A WAY TO "STRETCH" THE PRODUCTION OVER TWELVE MONTHS THUS FAVORING BATESVILLE OVER AIRPORT.

AWARD WAS MADE TO BATESVILLE AFTER IT HAD BEEN DETERMINED THAT THE FIRM HAD THE CAPABILITY AND CAPACITY TO PRODUCE 90,000 M151 WARHEADS PER MONTH. AT A MEETING HELD AFTER THE AWARD TO BATESVILLE, THE PROJECT MANAGER OF THE 2.75 INCH ROCKET SYSTEM WAS NOTIFIED OF THE ARMY AND AIR FORCE'S REDUCED DEMAND FOR THE M151 WARHEAD. THE PROJECT MANAGER ALSO WAS INFORMED OF THE CURRENT NEED FOR ADDITIONAL M229 WARHEADS. RELYING ON THIS INFORMATION, THE PROJECT MANAGER DECIDED IT WAS NECESSARY TO REDUCE AND POSTPONE THE M151 PRODUCTION IN ORDER TO MEET THE CHANGED REQUIREMENTS. WE VIEW HIS ACTIONS AS REASONABLE IN VIEW OF THE CHANGED CIRCUMSTANCES AND NOT AS A FAVOR TO BATESVILLE.

YOU NEXT CONTEND THAT YOU WERE NOT ALLOWED TO COMPETE ON THE 660,000 UNITS AWARDED TO ANOTHER COMPANY. PARAGRAPH 4 OF SECTION C ENTITLED "NOTICE TO OFFERORS" ON PAGE 27 OF THE SUBJECT RFP STATES:

"FIRM QUANTITIES DO NOT EXIST AT THIS TIME. CURRENT PLANNING IS TO AWARD AN APPROXIMATE QUANTITY 1,500,000 EACH UNITS. THIS IS SUBJECT TO REVISION AT THE TIME OF RECEIPT, OF FIRM REQUIREMENTS PRIOR TO AWARD. ALTERNATE PROPOSALS ARE PERMITTED."

FROM THE RECORD PRESENTED IT APPEARS THAT AIRPORT WAS MISTAKEN IN ITS VIEWPOINT THAT ONLY 540,000 PARTS WERE TO BE AWARDED AND BECAUSE OF THIS MISCONCEPTION YOU DID NOT MAKE AN OFFER ON THE HIGHER ALTERNATE AMOUNTS AS PERMITTED BY THE RFP. AWARD WAS MADE TO THE CHAMBERLAIN MANUFACTURING CORPORATION (CHAMBERLAIN), WHICH HAD SUBMITTED AN ALTERNATE PROPOSAL ON 660,000 UNITS. THE LOWEST COST TO THE GOVERNMENT WAS ACHIEVED BY THE AWARDS AS DISCUSSED ABOVE TO CHAMBERLAIN AND BATESVILLE.

YOU ALSO ALLEGE THAT "UNDER THE GUISE OF A CONVERSION" THE PROJECT MANAGER DIRECTED AN AWARD TO CHAMBERLAIN FOR 200,000 M229 WARHEADS WITHOUT ALLOWING AIRPORT A CHANCE TO COMPETE FOR THEIR PRODUCTION AND THAT THE RESULT OF USING THE CONVERSION TACTIC WAS TO RAISE THE COST OF PROCURING THESE WARHEADS BY $300,000.

BASED UPON A PROCUREMENT STRATEGY MEETING HELD DURING JANUARY 1971 AND A REQUEST BY THE UNITED STATES ARMY THAT A QUANTITY OF M151 WARHEADS UNDER FISCAL YEAR 1971 CONTRACT BE REPLACED WITH M229 WARHEADS, THE PROJECT MANAGER INVOKED THE CONVERSION CLAUSE IN THE CHAMBERLAIN CONTRACT WHICH PROVIDED THE GOVERNMENT A RIGHT TO CONVERT PRODUCTION OF THE M151 WARHEAD TO THE M229 WARHEAD ON AN EQUAL QUANTITY BASIS. THE ALTERNATIVE TO THE CONVERSION WOULD HAVE BEEN A TERMINATION FOR CONVENIENCE WHICH WOULD, OF COURSE, INVOLVE A SUBSTANTIAL PAYMENT BY THE GOVERNMENT IN EXCESS OF THE COST OF CONVERSION. WHEN THE COST TO THE GOVERNMENT OF THE TERMINATION IS CONSIDERED, THE CONVERSION WAS LESS COSTLY TO THE GOVERNMENT THAN A NEW PROCUREMENT, EVEN AT A LOWER UNIT PRICE.

THE FOREGOING RECORD DOES NOT, IN OUR JUDGMENT, ESTABLISH THAT AIRPORT WAS UNFAIRLY TREATED.

YOUR SECOND PROTEST IS AGAINST THE AWARD OF CONTRACT TO ANY OTHER PRODUCER UNDER RFP DAAA09-72-R-0006 FOR THE M151 WARHEAD. THIS RFP WAS ISSUED WITH A PLANNING QUANTITY OF 480,000 TO 840,000 M151 WARHEADS AND NOT A FIRM QUANTITY OF 840,000 WARHEADS AS INDICATED IN YOUR LETTER. AMENDMENT 0001 ESTABLISHED THE PROCUREMENT QUANTITY OF 420,000 UNITS. OCTOBER 15, 1971, AIRPORT WAS INFORMED THAT AN AWARD OF CONTRACT WOULD NOT BE MADE ON THAT DATE AND THAT A HOLD HAD BEEN PLACED ON ALL 2.75 INCH ROCKET WARHEAD AWARDS. ON OCTOBER 20, 1971, AIRPORT WAS NOTIFIED THAT RFP DAAA09-72-R-0006 FOR THE M151 WARHEAD HAD BEEN CANCELLED.

THE ADMINISTRATIVE REPORT EXPLAINS THAT A SIGNIFICANT CHANGE IN REQUIREMENTS FOR THE M151 WARHEADS WAS RECOGNIZED BEFORE AWARD AND SINCE AN ADEQUATE STOCKPILE EXISTED THERE WAS NO NEED TO ACQUIRE ADDITIONAL UNITS IN FISCAL YEAR 1972.

THE RIGHT TO CANCEL A SOLICITATION AT ANY TIME PRIOR TO AWARD FOR A LEGITIMATE REASON SUCH AS ELIMINATION OF THE REQUIREMENT IS WELL RECOGNIZED AND PARAGRAPH 10(B) OF STANDARD FORM 33A INCORPORATED BY REFERENCE IN THE RFP, EXPRESSLY RESERVES TO THE GOVERNMENT THE RIGHT TO REJECT ANY OR ALL OFFERS SUBMITTED UNDER THE RFP. IN VIEW OF THE REASONS ADVANCED BY THE CONTRACTING OFFICER FOR CANCELLING THE PROCUREMENT, WE DO NOT BELIEVE THIS OFFICE WOULD BE JUSTIFIED IN OBJECTING TO SUCH ACTION.

IN AN ATTACHMENT TO YOUR LETTER OF NOVEMBER 11, 1971, YOU PROTEST THE ALLEGED RESTRICTION ON COMPETITION AND THE TYING UP OF PRODUCTION LINES BY AMENDMENT 0003 TO BOTH RFP DAAA09-72-R-0008 FOR THE M229 WARHEAD AND RFP DAAA09-72-R-0009 FOR THE M156 WARHEAD. THIS AMENDMENT READS AS FOLLOWS:

"IN THE EVENT THAT ONLY ONE (1) AWARD WILL BE MADE FOR THE WARHEAD, NE, M229, MPTS, THEN NO ONE (1) FIRM WILL RECEIVE AN AWARD FOR BOTH THE WARHEAD, NE, M229, MPTS UNDER RFP DAAA09-72-R-0008 AND THE WARHEAD, SMK, WP, M156, MPTS UNDER RFP DAAA09-72-R-0009."

THIS PROCUREMENT IS TO BE NEGOTIATED BASED UPON THE AUTHORITY GRANTED IN 10 U.S.C. 2304(A)(16), WHICH PROVIDES THAT THE HEAD OF A MILITARY AGENCY MAY PURCHASE BY NEGOTIATION WHEN:

"HE DETERMINES THAT (A) IT IS IN THE INTEREST OF NATIONAL DEFENSE TO HAVE A PLANT, MINE, OR OTHER FACILITY, OR A PRODUCER, MANUFACTURER, OR OTHER SUPPLIER, AVAILABLE FOR FURNISHING PROPERTY OR SERVICES IN CASE OF A NATIONAL EMERGENCY; OR (B) THE INTEREST OF INDUSTRIAL MOBILIZATION IN CASE OF SUCH AN EMERGENCY, OR THE INTEREST OF NATIONAL DEFENSE IN MAINTAINING ACTIVE ENGINEERING, RESEARCH, AND DEVELOPMENT, WOULD OTHERWISE BE SUBSERVED *** ."

THIS OFFICE HAS CONSISTENTLY HELD THAT A MILITARY AGENCY MAY MAINTAIN SEVERAL SOURCES OF SUPPLY BASED ON THIS PROVISION EVEN IF HIGHER PRICES RESULT. 49 COMP. GEN. 840 (1970). CONSEQUENTLY, WE FIND THE AMENDMENT TO BE A PROPER EXERCISE OF ADMINISTRATIVE DISCRETION UNDER 10 U.S.C. 2304(A)(16).

SINCE THE ALLEGED LATE DELIVERY OF THE MODIFICATION DOES NOT APPEAR TO HAVE ADVERSELY AFFECTED YOUR COMPETITIVE POSITION, WE DO NOT THINK IT MERITS ANY FURTHER CONSIDERATION.

PURSUANT TO OUR REVIEW OF THE RECORD AS SET FORTH ABOVE, WE FIND NO BASIS TO QUESTION THE VALIDITY OF THE PROCUREMENT ACTIONS DESCRIBED ABOVE.

THEREFORE, YOUR PROTEST MUST BE DENIED.