B-175974, DEC 19, 1972

B-175974, DEC 19, 1972

BID PROTEST - HIGH PRICE - BUYING-IN - BIDDER RESPONSIBILITY - WITHDRAWAL OF SET ASIDE DECISION DENYING THE PROTEST OF JOE BELL ENTERPRISES AGAINST AWARD OF A CONTRACT TO H. L. YOH COMPANY UNDER A RFQ ISSUED BY THE LOS ANGELES AIR FORCE STATION, CALIF., FOR SECURITY POLICE SERVICES. ASPR 3-805.1(B) DOES NOT CREATE A MANDATE WHICH WOULD COMPEL A CONTRACTING OFFICER TO NOTIFY AN OFFEROR THAT HIS BID IS TOO HIGH. MOREOVER, ASPR 1-311(A) DOES NOT PROVIDE FOR REJECTION OF A BID WHERE "BUYING IN" IS SUSPECTED, AND THERE IS NO LEGAL BASIS UPON WHICH AN AWARD MAY BE PRECLUDED OR DISTURBED MERELY BECAUSE THE LOW BIDDER SUBMITTED AN UNPROFITABLE PRICE. B-169465, JUNE 19, 1970. SINCE THE RESPONSIBILITY OF AN OFFEROR IS A QUESTION OF FACT REQUIRING EXERCISE OF A CONSIDERABLE RANGE OF DISCRETION BY THE CONTRACTING OFFICER, GAO WILL NOT SUBSTITUTE ITS JUDGMENT FOR THAT OF THE CONTRACTING OFFICER UNLESS THE EXERCISE OF THE DISCRETION CONSTITUTED AN ABUSE OF AUTHORITY. SEE 45 COMP. GEN. 4, 6 (1965). IF A CONTRACTOR SUBSEQUENTLY FAILS TO PERFORM ADEQUATELY, THIS CIRCUMSTANCE DOES NOT VITIATE THE ORIGINAL DETERMINATION OF RESPONSIBILITY. FURTHERMORE, IF THE CONTRACTING OFFICER CONSIDERS THE PROCUREMENT OF THE SET-ASIDE FROM SMALL BUSINESS CONCERNS DETRIMENTAL TO THE PUBLIC INTEREST, HE MAY WITHDRAW HIS SET-ASIDE DETERMINATION.

TO MR. JOE BELL:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 1, 1972, AND PRIOR CORRESPONDENCE, PROTESTING THE AWARD OF A CONTRACT TO THE H. L. YOH COMPANY UNDER REQUEST FOR QUOTATIONS (RFQ) F04693-72-Q-0013, ISSUED BY THE LOS ANGELES AIR FORCE STATION, CALIFORNIA, FOR SECURITY POLICE SERVICES.

YOU CONTEND THAT THE RFQ WAS DEFICIENT BECAUSE IT DID NOT INCLUDE A PROGRESS PAYMENT PROVISION AS REQUIRED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) SECTION E-504.1. HOWEVER, ASPR SECTION E-504.1, BY ITS TERMS, IS APPLICABLE ONLY TO FORMAL ADVERTISING ACCOMPLISHED UNDER INVITATIONS FOR BIDS. HERE, PROCUREMENT WAS NEGOTIATED UNDER A "REQUEST FOR QUOTATIONS." IN ANY EVENT, YOU WERE NOT PREJUDICED BY THE ABSENCE OF A PROGRESS PAYMENT PROVISION IN THE RFQ SINCE YOU ADMIT THAT THE CONTRACTING OFFICER ADVISED YOU DURING THE APRIL 6, 1972, PREPROPOSAL CONFERENCE THAT PROGRESS PAYMENTS WERE A NEGOTIABLE ITEM WHICH COULD BE INCLUDED IN THE FINAL CONTRACT.

NEXT, YOU STATE THE SMALL BUSINESS ADMINISTRATION (SBA) FAILED TO PROVIDE YOU WITH INFORMATION AND ASSISTANCE REQUIRED BY YOUR FIRM TO OBTAIN CONTRACT FINANCING. YOU ALLEGE THAT ALTHOUGH YOU FREQUENTLY VISITED SEVERAL REPRESENTATIVES OF THE SBA TO OBTAIN FINANCING, BEGINNING IN APRIL 1972, IT WAS NOT UNTIL JUNE 14, 1972, THE DAY BEFORE THE CONTRACT WAS TO BE AWARDED, THAT YOU LEARNED OF AN SBA PROGRAM THAT YOU REFER TO AS "A PRE -BID CREDIT LINE FOR A GUARANTEED LOAN TO A QUALIFIED SMALL BUSINESSMAN TO BID ON U.S. GOVERNMENT CONTRACTS." IT IS YOUR POSITION THAT HAD YOU KNOWN OF THIS SBA PROGRAM SOONER, YOU COULD HAVE STRENGTHENED THE FINANCIAL STATUS OF YOUR FIRM TO MAKE IT MORE COMPETITIVE.

HOWEVER, IT IS NOT APPARENT THAT YOUR FINANCIAL STATUS CONTRIBUTED TO YOUR FAILURE TO OBTAIN THE AWARD. THE LOWEST OFFER RECEIVED WAS IN THE AMOUNT OF $2,456,734 AND YOUR BEST AND FINAL QUOTATION IN THE AMOUNT OF $2,729,813.12 RANKED THIRD IN THE PRICE COMPETITION. FURTHER, YOU HAVE INDICATED THAT YOU WOULD NOT HAVE BEEN ABLE TO PERFORM THE CONTRACT FOR THE PRICE QUOTED BY THE LOW OFFEROR. THEREFORE, IT DOES NOT APPEAR THAT YOU COULD HAVE BEEN THE LOW OFFEROR IN ANY EVENT.

MOREOVER, WE CANNOT FAULT THE CONTRACTING AGENCY FOR PROBLEMS YOU MAY HAVE ENCOUNTERED IN ATTEMPTING TO OBTAIN FINANCING THROUGH THE AUSPICES OF THE SBA. HOWEVER, WE ARE FORWARDING A COPY OF YOUR LETTER OF JUNE 15, 1972, TO THE SMALL BUSINESS ADMINISTRATION FOR THEIR INFORMATION AND APPROPRIATE ACTION.

YOU ALSO STATE THAT DURING THE FINAL NEGOTIATION MEETING, IN WHICH YOUR LAST AND FINAL OFFER WAS SOLICITED, YOU BELIEVED THAT YOU WERE THE LOWEST OFFEROR, WHICH FACT CAUSED YOU TO RETAIN YOUR PREVIOUS PRICE. YOU CONTEND THAT THE CONTRACTING OFFICER SHOULD HAVE INFORMED YOU THAT YOUR OFFER WAS "TOO HIGH" SO YOU COULD HAVE HAD AN OPPORTUNITY TO REDUCE YOUR PRICE.

IN THAT REGARD, OUR OFFICE STATED IN B-176223, SEPTEMBER 25, 1972, 52 COMP. GEN. .

"WE NOTE THAT ASPR 3-805.1(B) PERMITS ADVISING AN OFFEROR THAT HIS PRICE IS CONSIDERED TOO HIGH. THERE IS, HOWEVER, NO MANDATE WHICH COMPELS THE PROCUREMENT ACTIVITY TO OFFER SUCH ADVICE. ***"

YOU ALSO ASSERT THAT THE SUCCESSFUL OFFEROR WAS "BUYING IN." HOWEVER, THAT DOES NOT PROVIDE A BASIS FOR REJECTION OF THE OFFER. SEE 50 COMP. GEN. 50 AT PAGE 54 (1970), WHEREIN IT WAS STATED:

"*** ASPR 1-311(A) OFFERS THE FOLLOWING DEFINITION OF 'BUYING IN':

"'"BUYING IN" REFERS TO THE PRACTICE OF ATTEMPTING TO OBTAIN A CONTRACT AWARD BY KNOWINGLY OFFERING A PRICE OR COST ESTIMATE LESS THAN ANTICIPATED COSTS WITH THE EXPECTATION OF EITHER (I) INCREASING THE CONTRACT PRICE OR ESTIMATED COST DURING THE PERIOD OF PERFORMANCE THROUGH CHANGE ORDERS OR OTHER MEANS, OR (II) RECEIVING FUTURE "FOLLOW ON" CONTRACTS AT PRICES HIGH ENOUGH TO RECOVER ANY LOSSES ON THE ORIGINAL "BUY IN" CONTRACT. ***

"AND FURTHER PROVIDES THAT:

"'*** WHERE THERE IS REASON TO BELIEVE THAT "BUYING IN" HAS OCCURRED, CONTRACTING OFFICERS SHALL ASSURE THAT AMOUNTS THEREBY EXCLUDED IN THE DEVELOPMENT OF THE ORIGINAL CONTRACT PRICE ARE NOT RECOVERED IN THE PRICING OF CHANGE ORDERS OR OF FOLLOW-ON PROCUREMENTS SUBJECT TO COST ANALYSIS.'

"SINCE THE PERTINENT REGULATION DOES NOT PROVIDE FOR THE REJECTION OF A BID WHERE 'BUYING IN' IS SUSPECTED, WE HAVE RECOGNIZED IN A NUMBER OF DECISIONS THAT THERE IS NO LEGAL BASIS UPON WHICH 'AN AWARD MAY BE PRECLUDED OR DISTURBED MERELY BECAUSE THE LOW BIDDER SUBMITTED AN UNPROFITABLE PRICE.' B-169465, JUNE 19, 1970, CITING B-150318, MARCH 25, 1963, AND B-149551, AUGUST 16, 1962."

SEE ALSO 50 ID. 788, 790 (1971).

IT IS ALSO YOUR CONTENTION THAT THE SUCCESSFUL OFFEROR WAS NONRESPONSIBLE AND HAS DEMONSTRATED THIS FACT BY NOT BEING ABLE TO PERFORM UNTIL SIX DAYS AFTER THE CONTRACT COMMENCEMENT DATE AND THEN ONLY THROUGH THE USE OF UNCLEARED AND UNQUALIFIED PERSONNEL AND LARGE NUMBERS OF OFF-DUTY AIRMEN. YOU BELIEVE THAT THE CONTRACTOR SHOULD HAVE BEEN ADJUDGED NONRESPONSIBLE BY THE CONTRACTING OFFICER PRIOR TO AWARD AND FAILING THAT SHOULD HAVE BEEN DEFAULTED AFTER AWARD, NEITHER OF WHICH OCCURRED.

THE CONTRACTING OFFICER'S JUSTIFICATION FOR DETERMINING THE SUCCESSFUL OFFEROR TO BE RESPONSIBLE PRIOR TO AWARD WAS:

"THE SOURCE SELECTION FILE AND OTHER DATA CLEARLY DEMONSTRATES THAT THE H. L. YOH COMPANY DID HAVE THE POTENTIAL ABILITY TO PERFORM ON THE DATE IN WHICH A DETERMINATION WAS MADE TO AWARD THE CONTRACT."

THE CONTRACTING OFFICER FURTHER STATED:

"THE H. L. YOH COMPANY WAS DETERMINED TECHNICALLY QUALIFIED BEFORE AWARD AND DOES HAVE EXTENSIVE 'GUARD FORCE' EXPERIENCE INCLUDING THE GREATER LOS ANGELES AREA AND SOUTHERN CALIFORNIA."

WE HAVE HELD CONSISTENTLY THAT RESPONSIBILITY OF AN OFFEROR IS A QUESTION OF FACT TO BE DETERMINED BY THE CONTRACTING OFFICER AND NECESSARILY INVOLVES THE EXERCISE OF A CONSIDERABLE RANGE OF DISCRETION. WE HAVE ADOPTED THE RULE IN PRIOR CASES THAT WE WILL NOT SUBSTITUTE OUR JUDGEMENT FOR THAT OF THE CONTRACTING OFFICER UNLESS THE EVIDENCE IN THE RECORD SUPPORTS A FINDING THAT THE DISCRETION EXERCISED CONSTITUTED AN ABUSE OF THAT AUTHORITY. SEE 45 COMP. GEN. 4, 6 (1965), 43 ID. 257 (1963) AND 38 ID. 778, 781 (1959). IN THIS CASE, IT APPEARS THAT THE CONTRACTING OFFICER HAD A REASONABLE BASIS UPON WHICH TO CONCLUDE THAT THE H. L. YOH COMPANY WAS A RESPONSIBLE OFFEROR.

FURTHER, WHETHER THE CONTRACTOR SHOULD HAVE BEEN PLACED IN DEFAULT FOR NOT MEETING THE SCHEDULED COMMENCEMENT DATE OF THE CONTRACT IS A MATTER FOR CONSIDERATION BY THE CONTRACTING OFFICER IN THE ADMINISTRATION OF THE CONTRACT. MOREOVER, IF A CONTRACTOR SUBSEQUENTLY FAILS TO PERFORM DURING THE TERM OF THE CONTRACT, THAT CIRCUMSTANCE WOULD NOT VITIATE THE ORIGINAL DETERMINATION OF RESPONSIBILITY OR AFFECT THE VALIDITY OF THE AWARD.

FINALLY, YOU CONTEND THAT IT WAS IMPROPER TO WITHDRAW THE SMALL BUSINESS SET-ASIDE BECAUSE LARGE WELL-FINANCED COMPANIES PROVIDE UNFAIR COMPETITION, SINCE THEY CAN BETTER RISK POSSIBLE LOSS ON A LOW OFFER. WHETHER A PARTICULAR PROCUREMENT SHOULD BE SET ASIDE FOR SMALL BUSINESS CONCERNS IS A MATTER WITHIN THE JURISDICTION OF THE PROCURING AGENCY AND SBA. 15 U.S.C. 644. WITH RESPECT TO TOTAL SET-ASIDES, ASPR 1 706.5(A)(1) PROVIDES AS FOLLOWS:

"SUBJECT TO ANY APPLICABLE PREFERENCE FOR LABOR SURPLUS AREA SET ASIDES AS PROVIDED IN 1-803(A)(II), THE ENTIRE AMOUNT OF AN INDIVIDUAL PROCUREMENT OR A CLASS OF PROCUREMENTS, INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION, SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION (SEE 1-701.1) IF THE CONTRACTING OFFICER DETERMINES THAT THERE IS REASONABLE EXPECTATION THAT BIDS OR PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES.

ORIGINALLY, THE RFQ WAS ISSUED AS A 100 PERCENT SET-ASIDE FOR SMALL BUSINESSES WITH ANNUAL RECEIPTS NOT EXCEEDING $5 MILLION. A SMALL BUSINESS CONCERN APPEALED THE CONTRACTING OFFICER'S $5 MILLION SIZE STANDARD TO THE SMALL BUSINESS SIZE APPEALS BOARD WHICH DETERMINED THAT THE SIZE STANDARD APPLICABLE TO THIS PROCUREMENT SHOULD BE REDUCED TO $1 MILLION IN ANNUAL RECEIPTS. UNDER PROVISIONS OF THE SMALL BUSINESS ACT OF 1958, 15 U.S.C. 632 AND 637(B)(6), SIZE STANDARDS FIXED BY SBA ARE CONCLUSIVE AND BINDING ON PROCUREMENT OFFICIALS. 47 COMP. GEN. 462, 467 (1968) AND 46 COMP. GEN. 102, 105 (1966).

THE CONTRACTING OFFICER CONSIDERED THAT THE NEW SIZE STANDARD WOULD SEVERELY LIMIT THE NUMBER OF FIRMS THAT WOULD BE ABLE TO COMPETE FOR THE CONTRACT AND DETERMINED IT WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT FOR COMPETITION TO BE UNRESTRICTED. FOR THIS REASON, THE CONTRACTING OFFICER WITHDREW THE SET-ASIDE DETERMINATION PURSUANT TO ASPR 1-706.3(A), WHICH PROVIDES IN PERTINENT PART:

"*** 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 SET- ASIDE DETERMINATION."

IN THE CIRCUMSTANCES, WE ARE UNABLE TO CONCLUDE THAT THE ACTION OF THE CONTRACTING OFFICER IN WITHDRAWING THE SET-ASIDE WAS IMPROPER.

IN VIEW OF THE FOREGOING, YOUR PROTEST IS DENIED.