B-174451, FEB 28, 1972

B-174451, FEB 28, 1972

BID PROTEST - UNRESTRICTED SOLICITATION - PRICE DIFFERENTIAL - UNPROFITABLE BID - LIMITED ORAL SOLICITATION DECISION DENYING PROTEST OF OSWALD SCHICKER MANUFACTURING CO., INC., AGAINST AWARD OF A CONTRACT TO ART EMBROIDERY CO. (ART) UNDER AN IFB ISSUED BY THE DEFENSE PERSONNEL SUPPORT CENTER, PHILADELPHIA, PA. PROTESTANT ALSO OBJECTS TO A PRIOR AWARD TO ART OF AN ORAL SOLICITATION. SCHICKER CONTENDS THAT THE PORTION OF THE PROCUREMENT NOT SUBJECT TO THE LABOR SURPLUS AREA SET-ASIDE SHOULD HAVE BEEN SET-ASIDE FOR SMALL BUSINESS CONCERNS RATHER THAN BEING LEFT UNRESTRICTED. SUCH AN ARRANGEMENT IS PROHIBITED BY ASPR 1-803(A)(II), SINCE IT WOULD ALLOW FOR THE PAYMENT OF A PRICE DIFFERENTIAL ON CONTRACTS MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATIONS. SIMILARLY, THE INTENT OF SECTION 724, DOD APPROPRIATION ACT, 1972, IS THAT ALL CONTRACTS ARE TO BE AWARDED AT THE LOWEST PRICE AVAILABLE. B-162936, MARCH 21, 1968. CONCERNING ART'S SUBMISSION OF AN ALLEGEDLY UNPROFITABLE BID, ASPR 1 311 DOES NOT PRECLUDE THE ACCEPTANCE OF BELOW-COST BIDS, BUT ONLY PROVIDES THAT THE CONTRACTING OFFICER TAKE STEPS TO INSURE AGAINST THE RECOVERY OF EXCLUDED AMOUNTS THROUGH CHANGE ORDERS OR FOLLOW-ON PROCUREMENTS. B-170360, APRIL 6, 1971. WITH REGARD TO PROTESTANT'S CONTENTION THAT IT WAS UNJUSTIFIABLY DENIED AN OPPORTUNITY TO PARTICIPATE IN THE ORAL SOLICITATION, THE EVIDENCE INDICATES THAT SCHICKER FAILED TO SUBMIT SUPPORTIVE DATA TO THE SMALL BUSINESS ADMINISTRATION FOR POSSIBLE ISSUANCE OF A CERTIFICATE OF COMPETENCY. IN ADDITION, IT APPEARS THAT THE INSIGNIA WERE URGENTLY NEEDED AND, ABSENT A CLEAR SHOWING OF ABUSE OF THE CONTRACTING OFFICER'S DISCRETION, THE COMP. GEN. WILL NOT QUESTION HIS LIMITATION ON THE NUMBER OF SOURCES TO BE SOLICITED. B-172630, NOVEMBER 17, 1971. IN VIEW OF THE FOREGOING, THE PROTEST MUST BE DENIED.

TO LINCOLN & STEWART:

REFERENCE IS MADE TO YOUR TELEFAX RECEIVED NOVEMBER 2, 1971, PROTESTING ON BEHALF OF THE OSWALD SCHICKER MANUFACTURING CO., INC., PARAMUS, NEW JERSEY (SCHICKER), THE AWARD OF A CONTRACT ON OCTOBER 29, 1971, TO ART EMBROIDERY CO. (ART), UNDER INVITATION FOR BIDS (IFB) DSA100-72-B-0423, ISSUED OCTOBER 18, 1971, BY THE DEFENSE PERSONNEL SUPPORT CENTER, PHILADELPHIA, PENNSYLVANIA (DPSC). IN ADDITION, YOU PROTEST THE AWARD OF A CONTRACT TO ART ON OCTOBER 4, 1971, PURSUANT TO AN ORAL SOLICITATION ON PURCHASE REQUEST SC0100-1259-2460-00-2, DATED SEPTEMBER 24, 1971.

IFB DSA100-72-B-0423 SOLICITED BIDS FOR 340,787 "BADGE RATING 1ST CLASS PETTY OFFICER FOR MEN, POLYESTER BLUE BACKGROUND (NAVY SHADE 3357)." THE SPECIAL ASSISTANT FOR SMALL BUSINESS AND ECONOMIC UTILIZATION ON OCTOBER 1, 1971, DETERMINED THE SUBJECT SOLICITATION SHOULD BE 50 PERCENT UNRESTRICTED AND 50 PERCENT LABOR SURPLUS AREA SET ASIDE.

THE UNRESTRICTED PORTION WAS AWARDED TO ART ON OCTOBER 29, 1971, AT A UNIT PRICE OF $0.225 EACH. FOUR OTHER BIDS WERE RECEIVED FROM SMALL BUSINESS FIRMS:

OTSEGO EMBLEM CO. $.28 EACH, LABOR SURPLUS AREA

EMBLEMS, INC. .38 EACH, LABOR SURPLUS AREA

OSWALD SCHICKER MFG. CO. .25487 EACH, LABOR SURPLUS AREA

SCHIFFLI CORPORATION OF AMERICA .271 EACH, LABOR SURPLUS AREA

THE CONTRACTING OFFICER'S DETERMINATION AND FINDING (D&F) DATED SEPTEMBER 27, 1971, INDICATED THAT THE SUBJECT BADGES WERE ON BACKORDER FOR A QUANTITY OF 186,401 AND THE BACKORDER WOULD INCREASE AT THE RATE OF 72,763 PER MONTH. BY A SEPTEMBER 28, 1971, SET-ASIDE DETERMINATION OF THE SPECIAL ASSISTANT FOR SMALL BUSINESS AND ECONOMIC UTILIZATION, A PURCHASE REQUEST FOR 73,213 INSIGNIA DATED SEPTEMBER 24, 1971, WAS AUTHORIZED ON A 100 PERCENT UNRESTRICTED BASIS. SINCE THE PUBLIC EXIGENCY WOULD NOT PERMIT THE DELAY INCIDENT TO ADVERTISING, AND REQUISITIONS FOR THE 73,213 INSIGNIA CARRIED ISSUE PRIORITY DESIGNATORS FROM 1 TO 6, NEGOTIATION WAS PERMITTED PURSUANT TO THE AUTHORITY OF 10 U.S.C. 2304(A)(2), AS IMPLEMENTED BY PARAGRAPH 3.202.2(VI) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). THE CONTRACTING OFFICER THEREFORE ORALLY SOLICITED AND NEGOTIATED WITH THREE QUALIFIED SUPPLIERS WHO POSSESSED THE KNOW-HOW AND CAPABILITIES TO PRODUCE THE BADGES IN ACCORDANCE WITH THE SPECIFICATION REQUIREMENTS AND WITHIN THE TIME FRAME SPECIFIED. THE NEGOTIATED PRICES WERE AS FOLLOWS:

OTSEGO EMBLEM CO. $.28 EACH

ART EMBROIDERY CO. .23 EACH

SCHIFFLI CORPORATION OF AMERICA .2724 EACH

IN YOUR TELEGRAM YOU INITIALLY CONTEND THAT THE PORTION OF THE PROCUREMENT NOT SUBJECT TO THE LABOR SURPLUS AREA SET-ASIDE SHOULD HAVE BEEN A SMALL BUSINESS SET-ASIDE. AS A SECOND CONTENTION, YOU STATE THAT ART'S LOW BID VIOLATED AN ASPR PROHIBITION AGAINST "BUYING-IN." YOUR THIRD CONTENTION IS THAT THE PURPOSE OF THE LABOR SURPLUS AREA SET ASIDE WILL BE UNDERMINED SINCE NONE OF THE GROUP 1 PRIORITY FIRMS CAN REALISTICALLY ACCEPT A NEGOTIATED CONTRACT AT ART'S LOW BID. YOUR FINAL GROUND FOR PROTEST IS THAT SCHICKER WAS UNJUSTIFIABLY DENIED AN OPPORTUNITY TO NEGOTIATE FOR THE SEPARATE PROCUREMENT OF 73,213 INSIGNIA.

REGARDING YOUR CONTENTION THAT THE PORTION OF THE PROCUREMENT NOT SUBJECT TO THE LABOR SURPLUS AREA SET-ASIDE SHOULD HAVE BEEN MADE SUBJECT TO A SMALL BUSINESS SET-ASIDE, IT SHOULD BE NOTED THAT TOTAL SET-ASIDES ARE NOT ALLOWED IN THE LABOR SURPLUS AREA PURSUANT TO ASPR 1 803(A)(II). THE CITED SECTION IMPLEMENTS SECTION 724 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1972, 85 STAT. 731, PROHIBITING PAYMENT OF A PRICE DIFFERENTIAL ON CONTRACTS MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATIONS. OUR OFFICE HAS INTERPRETED THE LANGUAGE OF THE PROVISO TO REQUIRE UNRESTRICTED COMPETITION IN AT LEAST ONE PORTION OF A PROCUREMENT IN ORDER TO ASSURE THAT A PRICE DIFFERENTIAL IS NOT INCLUDED IN THE PRICE AT WHICH THE SET-ASIDE PORTION IS AWARDED TO THE LABOR SURPLUS CONCERN. 41 COMP. GEN. 121 (1961); 40 ID. 489 (1961); B 173166, B-173166(2), B- 173166(3), NOVEMBER 29, 1971; B-164756, APRIL 3, 1969. SINCE YOUR SUGGESTED PROCUREMENT PROCEDURE FOR THE SUBJECT SOLICITATION WOULD OFFER NO GUARANTEE THAT A PRICE DIFFERENTIAL WOULD NOT BE PAID IN AWARDING THE LABOR SURPLUS AREA SET-ASIDE PORTION TO A LABOR SURPLUS AREA CONCERN, WE ARE UNABLE TO AGREE WITH THIS PORTION OF YOUR PROTEST.

WE ARE ALSO UNABLE TO AGREE WITH YOUR CONTENTION THAT ART, BY SUBMITTING A BID WHICH IS SO LOW THAT IT WILL NOT PERMIT A PROFIT OR RECOVERY OF FULLY DISTRIBUTED OVERHEAD COSTS, HAS VIOLATED THE ASPR PROHIBITION AGAINST "BUYING-IN." EVEN IF YOUR CONTENTION CONCERNING PROFIT AND OVERHEAD COSTS IS CORRECT, ASPR 1-311 DOES NOT PRECLUDE THE ACCEPTANCE OF BELOW COST BIDS, BUT MAINLY CAUTIONS CONTRACTING OFFICERS TO ASSURE THAT AMOUNTS EXCLUDED IN THE "BUY-IN" CONTRACT ARE NOT RECOUPED THROUGH CHANGE ORDERS OR BY FOLLOW-ON CONTRACTS. THUS, SO LONG AS THE BID OF THE SUSPECTED "BUY-IN" BIDDER IS LOW AND IS OTHERWISE RESPONSIVE TO THE INVITATION REQUIREMENTS, AND THE BIDDER IS DETERMINED BY THE CONTRACTING OFFICIALS TO BE RESPONSIBLE, AWARD MUST BE MADE TO THAT BIDDER AS IN THE GOVERNMENT'S BEST INTEREST. 50 COMP. GEN. 50 (1970); B-170360, APRIL 6, 1971; B-156888, JULY 2, 1965. THERE IS NO INDICATION IN THE RECORD THAT ART WAS NOT A RESPONSIBLE BIDDER, AND ITS LOW BID PRICE THEREFORE WOULD NOT JUSTIFY OR REQUIRE REJECTION OF ITS BID.

YOUR THIRD GROUND FOR PROTEST IS THAT THE GROUP 1 PRIORITY FIRMS (CERTIFIED-ELIGIBLE CONCERNS WITH A FIRST PREFERENCE WHICH ARE ALSO SMALL BUSINESS CONCERNS) ELIGIBLE FOR NEGOTIATIONS ON THE LABOR SURPLUS AREA SET -ASIDE WILL BE UNFAIRLY DENIED A REALISTIC CHANCE TO ACCEPT THE CONTRACT BECAUSE ART'S LOW BID IS SUBSTANTIALLY BELOW THE SMALL BUSINESS CONCERN'S DIRECT MATERIAL, LABOR AND OVERHEAD COSTS. THE LANGUAGE OF SECTION 724 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1972, SUPRA, LEAVES LITTLE ROOM FOR DOUBT, AND EXAMINATION OF THE LEGISLATIVE HISTORY CONFIRMS, THAT THE INTENT OF THE CONGRESS WAS THAT THE PRACTICE OF NEGOTIATING CONTRACTS WITH LABOR SURPLUS AREA FIRMS WHICH WILL MEET THE LOWEST PRICE OFFERED BY ANY OTHER BIDDER ON A DESIGNATED PROCUREMENT, MIGHT BE CONTINUED, BUT THAT NO SUCH CONTRACT CAN BE AWARDED BY THE DEFENSE AGENCIES OF THE GOVERNMENT AT A PRICE IN EXCESS OF THE LOWEST PRICE OTHERWISE AVAILABLE. 40 COMP. GEN. 489 (1961); B-162936, MARCH 21, 1968. SUCH INTENT OF CONGRESS HAS BEEN EXPRESSED BY REPEATING THE PROHIBITION AGAINST PAYMENT OF A PRICE DIFFERENTIAL TO RELIEVE ECONOMIC DISLOCATIONS IN EACH ANNUAL APPROPRIATION FOR THE DEPARTMENT OF DEFENSE SINCE 1954.

OUR OFFICE CANNOT AGREE WITH YOUR FOURTH CONTENTION THAT SCHICKER WAS UNJUSTIFIABLY DENIED THE OPPORTUNITY TO PARTICIPATE IN THE ORAL SOLICITATION FOR 73,213 OF THE SUBJECT INSIGNIA PURSUANT TO THE SEPARATE PURCHASE REQUEST SC0100-1259-2460-00-2. AS INDICATED ABOVE, THE INSIGNIA WERE URGENTLY NEEDED AND THE D&F BY THE CONTRACTING OFFICER JUSTIFIED NEGOTIATION ON THE BASIS OF THE PUBLIC EXIGENCY. WHILE THE APPLICABLE STATUTE (10 U.S.C. 2304(G)) REQUIRES, EVEN WHERE AUTHORITY EXISTS TO NEGOTIATE PROCUREMENTS, THAT PROPOSALS BE SOLICITED FROM THE MAXIMUM NUMBER OF QUALIFIED SOURCES, THIS REQUIREMENT IS QUALIFIED BY THE CONDITION THAT THE TIME OF DELIVERY WILL SO PERMIT. WE HAVE RECOGNIZED THAT THE PUBLIC EXIGENCY JUSTIFICATION CLOTHES THE CONTRACTING OFFICER WITH A CONSIDERABLE DEGREE OF DISCRETION IN DETERMINING THE EXTENT OF NEGOTIATION CONSISTENT WITH THE EXIGENCY OF THE SITUATION. IN SUCH CASES, THIS OFFICE WILL NOT QUESTION THE CONTRACTING OFFICER'S DECISION AS TO THE NUMBER OF SOURCES TO BE SOLICITED UNLESS IT IS CLEAR THAT HE HAS ABUSED THE DISCRETION VESTED IN HIM IN AN ARBITRARY OR CAPRICIOUS MANNER. COMP. GEN. 590 (1965); B-172630(1), NOVEMBER 17, 1971; B-172542, JULY 2, 1971. WE FIND NO SUCH ABUSE IN THE RECORD OF THIS CASE.

THE DEFENSE SUPPLY AGENCY REPORTS THE CONTRACTING OFFICER'S REASONS FOR NOT CONTACTING SCHICKER FOR THE ORAL NEGOTIATIONS, IN PERTINENT PART, AS FOLLOWS:

"SCHICKER WAS NOT CONTACTED SINCE THE CONTRACTING OFFICER DECIDED THAT THIS FIRM COULD NOT PRODUCE THE SPECIFICATION ITEM, WITHIN THE REQUIRED DELIVERY PERIOD. RECENT PREAWARD SURVEYS CONDUCTED IN AUGUST AND SEPTEMBER 1971 AT THE PLANT OF SCHICKER RESULTED IN RECEIPT OF 'NO AWARD' RECOMMENDATIONS. THESE RESULTS WERE BASED ON UNSATISFACTORY FINDINGS RELATIVE TO PRODUCTION CAPABILITY, PERFORMANCE RECORD AND ABILITY TO MEET REQUIRED DELIVERY SCHEDULE. THESE MATTERS WERE REFERRED TO THE SBA FOR COC ACTION IN ACCORDANCE WITH EXISTING REGULATIONS. SBA SUBSEQUENTLY ADVISED THAT SCHICKER HAD NOT SUBMITTED FORMS AND SUPPORTIVE DATA IN CONNECTION WITH COC ACTION AND CONSIDERED THE MATTER CLOSED. IT IS THE OPINION OF THE CONTRACTING OFFICER, THAT THE DECISION NOT TO NEGOTIATE WITH SCHICKER UNDER THE EXISTING EXIGENCY CONDITIONS WAS CORRECT."

SINCE THE DECISION TO LIMIT NEGOTIATIONS TO CONCERNS WHO COULD PRODUCE THE SUBJECT ITEM WITHIN A REQUIRED DELIVERY PERIOD APPEARS TO BE A REASONABLE EXERCISE OF THE CONTRACTING OFFICER'S DISCRETION, WE SEE NO BASIS UPON WHICH WE MAY PROPERLY OBJECT TO THE EXCLUSION OF SCHICKER FROM THE NEGOTIATIONS.

ACCORDINGLY, YOUR PROTEST MUST BE DENIED.