B-174907, MAY 15, 1972, 51 COMP GEN 739

B-174907: May 15, 1972

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RESOLICITATION OF THE PROCUREMENT TO OVERHAUL AND MODIFY AIRCRAFT PROPELLER COMPONENTS FROM BOTH LARGE AND SMALL FIRMS WERE NOT ARBITRARY ACTIONS WHERE ON THE BASIS OF A QUOTE - NOT A "COURTESY OFFER" - FROM A SMALL BUSINESS CONCERN PRIOR TO THE CORRECTION OF THE STANDARD INDUSTRIAL CLASSIFICATION WHICH CHANGED ITS STATUS TO LARGE BUSINESS. DISCUSSIONS WERE NOT HELD WITH ALL SMALL BUSINESS FIRMS WITHIN A COMPETITIVE RANGE (ASPR 3-805.1(A)). OR THAT A LATE PRICE REDUCTION BY A SMALL FIRM WAS NOT CONSIDERED. 1972: REFERENCE IS MADE TO YOUR LETTER DATED APRIL 12. YOU STATE THAT GOLDEN PROPELLER IS A SMALL BUSINESS CONCERN FOR THE PURPOSES OF THIS PROCUREMENT AND IS THE INCUMBENT CONTRACTOR.

B-174907, MAY 15, 1972, 51 COMP GEN 739

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - SET-ASIDES - WITHDRAWAL - BID PRICES EXCESSIVE THE WITHDRAWAL OF A SMALL BUSINESS SET-ASIDE PURSUANT TO PARAGRAPH 1 706.3 OF THE ARMED SERVICES PROCUREMENT REGULATION (OSPR), CANCELLATION OF THE REQUEST FOR QUOTATIONS, AND RESOLICITATION OF THE PROCUREMENT TO OVERHAUL AND MODIFY AIRCRAFT PROPELLER COMPONENTS FROM BOTH LARGE AND SMALL FIRMS WERE NOT ARBITRARY ACTIONS WHERE ON THE BASIS OF A QUOTE - NOT A "COURTESY OFFER" - FROM A SMALL BUSINESS CONCERN PRIOR TO THE CORRECTION OF THE STANDARD INDUSTRIAL CLASSIFICATION WHICH CHANGED ITS STATUS TO LARGE BUSINESS, THE CONTRACTING OFFICER DETERMINED LIMITING QUOTATIONS TO SMALL BUSINESS WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST, A REASONABLE DETERMINATION NOTWITHSTANDING THE WITHDRAWAL NOTICE DID NOT LITERALLY COMPLY WITH ASPR 1-706.3(A), OR THAT BEFORE THE WITHDRAWAL, DISCUSSIONS WERE NOT HELD WITH ALL SMALL BUSINESS FIRMS WITHIN A COMPETITIVE RANGE (ASPR 3-805.1(A)), OR THAT A LATE PRICE REDUCTION BY A SMALL FIRM WAS NOT CONSIDERED.

TO EARL P. DOLVEN, MAY 15, 1972:

REFERENCE IS MADE TO YOUR LETTER DATED APRIL 12, 1972, WITH ENCLOSURES, AND PRIOR CORRESPONDENCE, ON BEHALF OF THE GOLDEN PROPELLER CORP., PROTESTING THE ACTION TAKEN BY THE CONTRACTING OFFICER IN WITHDRAWING THE SMALL BUSINESS SET-ASIDE, CANCELING REQUEST FOR QUOTATIONS (RFQ) NO. F09603-72-Q-0216, AND RESOLICITING THE REQUIREMENT FROM LARGE AND SMALL BUSINESS FIRMS. YOU STATE THAT GOLDEN PROPELLER IS A SMALL BUSINESS CONCERN FOR THE PURPOSES OF THIS PROCUREMENT AND IS THE INCUMBENT CONTRACTOR.

THE SUBJECT RFQ, ISSUED ON AUGUST 6, 1971, INVITED QUOTATIONS FOR THE FURNISHING OF SERVICES AND SUPPLIES REQUIRED TO ACCOMPLISH OVERHAUL AND MODIFICATION OF PROPELLER COMPONENTS APPLICABLE TO THE O-2A, U-10 AND QU- 22B AIRCRAFT. THE PROCUREMENT WAS TOTALLY SET ASIDE FOR PARTICIPATION BY SMALL BUSINESS UNDER STANDARD INDUSTRIAL CLASSIFICATION (SIC) CODE 3723 UNDER WHICH A SMALL BUSINESS CONCERN IS ONE WHICH EMPLOYS NOT MORE THAN 1,000 EMPLOYEES. PRIOR TO THE NOVEMBER 8, 1971, DATE FOR RECEIPT OF OFFERS, GOLDEN PROPELLER APPEALED THE USE OF SIC CODE 3723 TO THE SIZE APPEALS BOARD IN WASHINGTON, D.C. ON SEPTEMBER 2, 1971, THE SIZE APPEALS BOARD RULED THAT THE CORRECT SIC CODE IS 4582 UNDER WHICH A SMALL BUSINESS CONCERN IS ONE WITH AVERAGE ANNUAL RECEIPTS NOT EXCEEDING $1 MILLION FOR THE PREVIOUS 3 FISCAL YEARS. THE CONTRACTING OFFICER APPEALED THIS RULING BUT THE CHAIRMAN OF THE SIZE APPEALS BOARD IN A LETTER DATED OCTOBER 15, 1971, ADVISED THE CONTRACTING OFFICER THAT THE BOARD FOUND NO BASIS FOR CHANGING ITS DECISION. THEREFORE, THE CONTRACTING OFFICER AMENDED THE SOLICITATION ON OCTOBER 28, 1971, TO COMPLY WITH THE BOARD'S RULING.

PRIOR TO AMENDMENT OF THE RFQ ESTABLISHING THE NEW SIC CODE, A QUOTATION WAS RECEIVED FROM PROPELLER SERVICE OF MIAMI, INC., WHICH IS CLASSIFIED AS A LARGE BUSINESS UNDER SIC CODE 4582. AFTER THE RECEIPT OF OFFERS, IT WAS DETERMINED THAT THE QUOTE FROM PROPELLER SERVICE OF MIAMI WAS SUBSTANTIALLY LESS THAN THE OFFER RECEIVED FROM ANY OTHER SOURCE. ALSO, OFFERS FROM OTHER SOURCES WERE FAR IN EXCESS OF THE GOVERNMENT'S ESTIMATE FOR THE PROCUREMENT. FOR THESE REASONS, THE CONTRACTING OFFICER DETERMINED THAT THE PRICES OFFERED BY SMALL BUSINESS OFFERORS WERE UNREASONABLE.

ON JANUARY 4, 1972, ALL OFFERORS WERE ADVISED THAT THE SUBJECT RFQ WAS BEING CANCELED IN ORDER THAT A RESOLICITATION MAY BE ISSUED TO FIRMS BOTH "LARGE" AND "SMALL." OFFERORS WERE ADVISED THAT THE SET ASIDE FOR SMALL BUSINESS "IS WITHDRAWN IN ACCORDANCE WITH ASPR 1 706.3." THE PROCUREMENT WAS RESOLICITED WITH A CLOSING DATE FOR RECEIPT OF PROPOSALS SET FOR JANUARY 24, 1972. THE PROPOSALS RECEIVED ARE BEING HELD UNOPENED PENDING A DECISION ON THE PROTEST BY OUR OFFICE.

YOU CONTEND THAT THE CONTRACTING OFFICER HAS TOTALLY IGNORED THE SMALL BUSINESS ADMINISTRATION (SBA) NOTICE REQUIREMENTS OF ARMED SERVICES PROCUREMENT REGULATION 1-706.3(D) GOVERNING THE WITHDRAWAL OF A SMALL BUSINESS SET-ASIDE. SBA ALSO PROTESTS THE DECISION OF THE CONTRACTING OFFICER TO WITHDRAW THE SET-ASIDE PRIOR TO SBA'S RULING ON THE SIZE STATUS OF THREE OF THE OFFERORS.

THE CONTRACTING OFFICER REPORTS THAT ON NOVEMBER 15, 1971, THE ATTORNEY FOR GOLDEN PROPELLER WAS FURNISHED THE NAMES OF THE OFFICERS SUBMITTING QUOTATIONS AND PROTESTED TO THE CONTRACTING OFFICER THE CONSIDERATION OF ANY OFFER SUBMITTED BY PROPELLER SERVICE OF MIAMI ON THE GROUND THAT THE FIRM WAS LARGE BUSINESS. GOLDEN PROPELLOR ALSO PROTESTED ANY AWARD TO EITHER AIRCRAFTSMEN, INC., OR PROPELLERS INC., ON THE SAME BASIS AND PURSUANT TO ASPR 1-703.

THE CONTRACTING OFFICER, PRIOR TO SUBMITTING YOUR PROTEST TO THE SBA FOR A RULING ON SIZE DETERMINATION, REVIEWED AND EVALUATED THE QUOTATIONS OF GOLDEN PROPELLER, PROPELLERS INC., AIRCRAFTSMEN, INC., AND PROPELLER SERVICE OF MIAMI, INC., AND CONCLUDED THAT THE ONLY REASONABLE QUOTE WAS SUBMITTED BY PROPELLER SERVICE OF MIAMI. THIS FIRM SUBMITTED A QUOTATION ON AUGUST 23, 1971, AS A SMALL BUSINESS UNDER SIC CODE 3723 UNDER WHICH THE RFQ WAS FIRST ISSUED.

PROPELLER SERVICE OF MIAMI ADVISED THAT THE NEW SIC CODE RESULTED IN ITS FIRM BEING CONSIDERED LARGE BUSINESS. THE CONTRACTING OFFICER REPORTS THAT AIRCRAFTSMEN, INC., FAILED TO ACKNOWLEDGE RECEIPT OF THE RFQ AMENDMENT EFFECTING THE CHANGE IN THE SIC CODE. UPON INQUIRY, AIRCRAFTSMEN ACKNOWLEDGED THAT UNDER THE NEW SIC CODE IT WAS ELIMINATED SINCE IT WOULD THEN BE CONSIDERED "LARGE" BUSINESS. THIS LEFT THE SIZE STATUS OF PROPELLERS INC. UNDETERMINED BY ANY MEANS. THE CONTRACTING OFFICER, AT THAT POINT IN TIME, DID NOT CONSIDER IT NECESSARY FOR HIM TO REFER THE MATTER TO SBA FOR DETERMINATION OF THE SIZE STATUS OF EITHER AIRCRAFTSMEN OR PROPELLER SERVICE OF MIAMI SINCE BOTH ADMITTED TO "LARGE" BUSINESS STATUS UNDER THE NEW SIC CODE. HE ALSO CONSIDERED IT USELESS TO DO SO WITH REGARD TO PROPELLERS INC. SINCE HIS DECISION TO WITHDRAW THE SET-ASIDE WOULD NOT BE AFFECTED REGARDLESS OF THE SIZE STATUS OF PROPELLERS INC.

ON DECEMBER 20, 1971, SUBSEQUENT TO THE CONTRACTING OFFICER'S DECISION TO WITHDRAW THE SET-ASIDE AND AT THE SBA'S RECOMMENDATION, THE CONTRACTING OFFICER REQUESTED SBA TO DETERMINE THE SIZE OF THE THREE PROTESTED OFFERORS. IN A REPORT FROM SBA, WE ARE ADVISED THAT ON DECEMBER 29, 1971, THE SBA DISTRICT OFFICE, OKLAHOMA CITY, OKLA., DETERMINED THAT AIRCRAFTSMEN WAS NOT A SMALL BUSINESS CONCERN. ON JANUARY 10, 1972, THE SBA REGIONAL DIRECTOR, SEATTLE, WASH., DETERMINED THAT PROPELLERS INC. WAS A SMALL BUSINESS CONCERN.

THE QUESTION FOR OUR CONSIDERATION IS WHETHER THE CONTRACTING OFFICER ACTED PROPERLY IN CANCELING THE SOLICITATION AND WITHDRAWING THE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS OFFERORS. YOU STATE THAT THE CONTRACTING OFFICER DID NOT FURNISH THE SBA WITH THE WRITTEN NOTICE OF INTENT TO WITHDRAW THE SET-ASIDE AS REQUIRED BY ASPR 1-706.3. ASPR 1 706.3(A) PROVIDES IN PERTINENT PART AS FOLLOWS:

*** IF, PRIOR TO AWARD OF A CONTRACT INVOLVING AN INDIVIDUAL OR CLASS SET -ASIDE, THE CONTRACTING OFFICER CONSIDERS THAT PROCUREMENT OF THE SET- ASIDE FROM A SMALL BUSINESS CONCERN WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST (E.G., BECAUSE OF UNREASONABLE PRICE), HE MAY WITHDRAW A UNILATERAL OR JOINT SET-ASIDE DETERMINATION BY GIVING WRITTEN NOTICE TO THE SMALL BUSINESS SPECIALIST, AND THE SBA REPRESENTATIVE IF AVAILABLE, STATING THE REASONS FOR THE WITHDRAWAL. *** .

BY LETTER DATED DECEMBER 15, 1971, THE CONTRACTING OFFICER ADVISED THE SBA ATLANTA REGIONAL OFFICE OF HIS INTENT TO WITHDRAW THE SMALL BUSINESS SET-ASIDE SINCE A REASONABLE PRICE HAD NOT RESULTED WHEN THE SOLICITATION WAS LIMITED TO SMALL BUSINESS FIRMS. ALTHOUGH THIS NOTICE WAS NOT SENT TO EITHER OF THE INDIVIDUALS DESIGNATED IN THE REGULATION, IT IS OUR UNDERSTANDING THAT IT WAS SENT TO THE REGIONAL OFFICE AT THE REQUEST OF THE SMALL BUSINESS REPRESENTATIVE AT ROBINS AIR FORCE BASE. THUS, WHILE THE REGULATION WAS NOT LITERALLY COMPLIED WITH, THE FACT REMAINS THAT THE SBA WAS PROVIDED WITH AN OPPORTUNITY TO APPEAL THE CONTRACTING OFFICER'S DETERMINATION AND DID NOT DO SO WITHIN 2 WORKING DAYS AS REQUIRED BY ASPR 1-706.3(D). FURTHER, THE CONTRACTING OFFICER, BY LETTER OF JANUARY 3, 1972, PROVIDED SBA WITH A SECOND OPPORTUNITY TO APPEAL BY THE CLOSE OF BUSINESS THAT DAY AND AGAIN NO APPEAL WAS TAKEN. IN THE CIRCUMSTANCES, WE CONCLUDE THAT THE SBA WAS FURNISHED WITH AN ADEQUATE OPPORTUNITY TO APPEAL THE CONTRACTING OFFICER'S DETERMINATION DESPITE THE FACT THAT THE NOTICE REQUIREMENT DID NOT MEET THE LITERAL REQUIREMENT OF ASPR 1-706.3(A).

WE AGREE, AS A GENERAL PROPOSITION, THAT, IN KEEPING WITH THE PROVISIONS OF ASPR 3-805.1(A), DISCUSSION SHOULD BE CONDUCTED WITH ALL SMALL BUSINESS OFFERORS WITHIN A COMPETITIVE RANGE IN A TOTAL SMALL BUSINESS SET-ASIDE PRIOR TO DECIDING WHETHER TO WITHDRAW THE SET-ASIDE BECAUSE OF THE RECEIPT OF UNREASONABLE PRICES ON INITIAL PROPOSALS FROM ALL OFFERORS. IN THE PRESENT CASE, THE CONTRACTING OFFICER WOULD HAVE BEEN REQUIRED TO OBTAIN A SIZE RULING FROM SBA PRIOR TO CONDUCTING DISCUSSIONS IN VIEW OF GOLDEN PROPELLER'S PROTEST THAT CERTAIN OTHER OFFERORS WERE LARGE BUSINESS CONCERNS. HOWEVER, THE CONTRACTING OFFICER WAS OF THE OPINION THAT THIS WOULD HAVE BEEN A USELESS DELAY SINCE, REGARDLESS OF THE SIZE RULING, WITHIN ALL PROBABILITY MEANINGFUL DISCUSSIONS LEADING TO REASONABLE PRICES FROM SMALL BUSINESSES COULD NOT HAVE BEEN CONDUCTED. SINCE THE INITIAL PRICES RECEIVED FROM SOURCES OTHER THAN PROPELLER SERVICE OF MIAMI WERE GROSSLY EXCESSIVE WHEN COMPARED TO THE PROPELLER SERVICE OF MIAMI PROPOSAL AND THE GOVERNMENT ESTIMATE FOR THE PROCUREMENT, THE CONTRACTING OFFICER'S DECISION NOT TO REFER THE SMALL BUSINESS SIZE PROTEST TO SBA AND NOT TO CONDUCT NEGOTIATIONS APPEARS REASONABLE IN THE CIRCUMSTANCES.

FURTHER, GOLDEN PROPELLER'S TELEGRAPHIC MODIFICATION OF DECEMBER 7, 1971, REDUCING ITS PRICES BY APPROXIMATELY 30 PERCENT WAS A LATE MODIFICATION WHICH THE CONTRACTING OFFICER WAS NOT REQUIRED TO CONSIDER. THE RECORD INDICATES THAT THIS REDUCTION IN PRICE WAS SUBMITTED AFTER TELEPHONIC ADVICE ON DECEMBER 6, 1971, THAT IT WAS THE INTENTION OF THE OFFICE OF THE DIRECTOR OF PROCUREMENT AT ROBINS AIR FORCE BASE TO CANCEL THE SOLICITATION ON DECEMBER 8, 1971. THE CONTRACTING OFFICER STATES THAT IN DECIDING NOT TO CONDUCT NEGOTIATIONS WITH ANY OF THE "SMALL" BUSINESSES INVOLVED, HE CONSIDERED GOLDEN PROPELLER'S REDUCED PRICE PROPOSAL AND HE REALIZED THAT NEGOTIATIONS MIGHT HAVE RESULTED IN SOME REDUCTIONS, BUT HE COULD NOT FIND A REASONABLE EXPECTATION THAT SUCH REDUCTIONS COULD PRODUCE PRICES AS REASONABLE AS THOSE EXPECTED THROUGH RESOLICITATION IN OPEN COMPETITION. KNOWN LARGE BUSINESS SOURCES WHICH HAD BEEN ORIGINALLY EXCLUDED FROM THE PROCUREMENT DUE TO ITS SET-ASIDE NATURE INCLUDED THE ORIGINAL MANUFACTURER OF THE EQUIPMENT. THE RECORD INDICATES THAT GOLDEN PROPELLER'S REDUCED PRICE PROPOSAL EXCEEDED THE GOVERNMENT ESTIMATE AND WAS SUBSTANTIALLY HIGHER THAN THAT OF PROPELLER SERVICE OF MIAMI. THIS REVISED QUOTE DID NOT OFFER ANY SUBSTANTIVE BASIS FOR A CHANGE IN THE CONTRACTING OFFICER'S PREVIOUS DECISION. UNDER THESE CIRCUMSTANCES, WE BELIEVE THE CONTRACTING OFFICER'S DECISION NOT TO CONDUCT NEGOTIATIONS WAS JUSTIFIED. FURTHER, WE FIND NO LEGAL BASIS TO QUESTION THE CONTRACTING OFFICER'S DECISION THAT LIMITING QUOTATIONS TO SMALL BUSINESS FIRMS IS DETRIMENTAL TO THE PUBLIC INTEREST.

THE SBA IN A REPORT TO OUR OFFICE CONTENDS THAT THE OFFER OF PROPELLER SERVICE OF MIAMI WAS A "COURTESY" OFFER AND IS NONRESPONSIVE. THE SBA REFERS TO DECISIONS OF OUR OFFICE WHERE WE HAVE HELD THAT THE RECEIPT OF LOWER PRICES FROM FIRMS WHICH ARE INELIGIBLE FOR AWARD IS INSUFFICIENT STANDING ALONE TO REQUIRE A CONCLUSION THAT THE PRICES SUBMITTED BY ELIGIBLE BIDDERS ARE UNREASONABLE. 46 COMP. GEN. 102, 106 (1966); B- 168534(1) AND (2), JANUARY 16, 1970; 50 COMP. GEN. 759 (1971). THE RECORD INDICATES THAT THE CONTRACTING OFFICER'S DECISION TO WITHDRAW THE SET- ASIDE WAS BASED ON PROPOSAL INFORMATION RESULTING FROM INITIAL QUOTATIONS RECEIVED UNDER THE ORIGINAL SMALL BUSINESS DEFINITION AS WELL AS AN INDEPENDENT ESTIMATE BY THE GOVERNMENT. AT THAT TIME THE PROPOSAL SUBMITTED BY PROPELLER SERVICE OF MIAMI WAS NOT A COURTESY PROPOSAL AND THE CONTRACTING OFFICER WAS JUSTIFIED IN CONSIDERING ITS PRICE AND THE GOVERNMENT ESTIMATE IN ARRIVING AT HIS DECISION TO WITHDRAW THE SET- ASIDE. WE DO NOT CONSIDER THAT THE WITHDRAWAL OF THE SMALL BUSINESS SET- ASIDE WAS ARBITRARY IN ANY RESPECT. B-151741, JULY 30, 1963.

ACCORDINGLY, WE BELIEVE THAT THE CANCELLATION OF THE RFQ AND RESOLICITATION CONSTITUTED A REASONABLE EXERCISE OF ADMINISTRATIVE DISCRETION VESTED IN THE CONTRACTING OFFICER AND THE PROTEST IS THEREFORE DENIED.