B-178890(2), OCT 12, 1973

B-178890(2): Oct 12, 1973

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

FOR THE REASONS CITED BELOW WE BELIEVE THAT THE PROPOSED TRANSFER IS IN ACCORDANCE WITH APPLICABLE LAW AND REGULATION. WAS AWARDED TO DEI ON AUGUST 11. DEI WAS IN THE PROCESS OF PERFORMING THIS CONTRACT ALONG WITH SEVERAL OTHER GOVERNMENT CONTRACTS WHEN. IT IS YOUR POSITION THAT ANY NOVATION BY DEI OF LESS THAN ALL ITS GOVERNMENT CONTRACTS SHOULD NOT BE ALLOWED. WOULD APPEAR TO CONSTITUTE THE TRANSFER OF A GOVERNMENT CONTRACT WHICH IS PROHIBITED BY LAW (41 U.S.C. 15).". THAT ALL OF DEI'S GOVERNMENT CONTRACTS FOR THESE PRODUCT LINES WILL BE TRANSFERRED TO ATO ALONG WITH THE SALE OF ASSETS. ALTHOUGH YOU INSIST THAT ANYTHING LESS THAN A NOVATION OF ALL OF DEI'S GOVERNMENT CONTRACTS IS INVALID.

B-178890(2), OCT 12, 1973

DENIAL OF PROTEST AGAINST THE PROPOSED TRANSFER OF CONTRACT NO. N00123-73 -C-0308, AWARDED TO DEFENSE ELECTRONICS INDUSTRIES, INC., BY THE NAVAL REGIONAL PROCUREMENT OFFICE, LOS ANGELES, CALIFORNIA.

TO MICRODYNE CORPORATION:

BY LETTER DATED AUGUST 14, 1973, AND PRIOR CORRESPONDENCE, YOU PROTESTED AGAINST THE PROPOSED TRANSFER OF CONTRACT NO. N00123-73-C 0308, AWARDED TO DEFENSE ELECTRONICS INDUSTRIES, INCORPORATED (DEI), BY THE NAVAL REGIONAL PROCUREMENT OFFICE, LOS ANGELES, CALIFORNIA.

FOR THE REASONS CITED BELOW WE BELIEVE THAT THE PROPOSED TRANSFER IS IN ACCORDANCE WITH APPLICABLE LAW AND REGULATION.

THE SUBJECT CONTRACT, FOR A TELEMETRY RECEIVER SYSTEM AND RELATED DATA, WAS AWARDED TO DEI ON AUGUST 11, 1972, AT A PRICE OF $888,308.75.

DEI WAS IN THE PROCESS OF PERFORMING THIS CONTRACT ALONG WITH SEVERAL OTHER GOVERNMENT CONTRACTS WHEN, IN THE SPRING OF 1973, MERCANTILE FINANCIAL CORPORATION (MERCANTILE) PURSUANT TO A FINANCING AGREEMENT WITH DEI TOOK POSSESSION OF ALL OF THAT FIRM'S ASSETS USED IN PERFORMING THESE CONTRACTS.

THE INTERNATIONAL ENGINEERING COMPANY, A DIVISION OF A-T-O, INCORPORATED (ATO), THE NAVY AND DEI PROPOSE TO ENTER INTO A NOVATION AGREEMENT TRANSFERRING CERTAIN OF DEI'S GOVERNMENT CONTRACTS (INCLUDING THE SUBJECT CONTRACT) TO ATO. MERCANTILE PROPOSES TO TRANSFER TO ATO ALL OF THE FORMER ASSETS OF DEI WHICH PERTAIN TO THE PERFORMANCE OF THE CONTRACTS TO BE NOVATED.

YOU NOTE THAT DEI PROPOSES TO TRANSFER ONLY 24 OF THE 30 GOVERNMENT CONTRACTS IN ITS POSSESSION. IT IS YOUR POSITION THAT ANY NOVATION BY DEI OF LESS THAN ALL ITS GOVERNMENT CONTRACTS SHOULD NOT BE ALLOWED. IN THIS CONNECTION, YOU STATE AS FOLLOWS:

"TO ALLOW A-T-O TO CHOOSE AT ITS OPTION THE PROFITABLE CONTRACT OR CONTRACTS OF ANY SINGLE DEPARTMENT, WITHOUT REQUIRING THAT A-T-O ACCEPT THE UNSETTLED CONTRACTS AMONG ALL GOVERNMENT DEPARTMENTS (AT THE OPTION OF EACH DEPARTMENT), WOULD APPEAR TO CONSTITUTE THE TRANSFER OF A GOVERNMENT CONTRACT WHICH IS PROHIBITED BY LAW (41 U.S.C. 15)."

THE RECORD SHOWS THAT ATO PROPOSED TO PURCHASE ALL OF DEI'S ASSETS ASSOCIATED WITH ITS PROPRIETARY TELEMETRY AND COMMUNICATIONS PRODUCT LINES, AND THAT ALL OF DEI'S GOVERNMENT CONTRACTS FOR THESE PRODUCT LINES WILL BE TRANSFERRED TO ATO ALONG WITH THE SALE OF ASSETS. ALTHOUGH YOU INSIST THAT ANYTHING LESS THAN A NOVATION OF ALL OF DEI'S GOVERNMENT CONTRACTS IS INVALID, WE BELIEVE THAT THE PROPOSED NOVATION IS CONSISTENT WITH THE PROVISIONS OF ASPR 26-402, WHICH PROVIDES AS FOLLOWS:

"26-402 AGREEMENT TO RECOGNIZE A SUCCESSOR IN INTEREST.

"(A) THE TRANSFER OF A GOVERNMENT CONTRACT IS PROHIBITED BY LAW (41 U.S.C. 15). HOWEVER, THE GOVERNMENT MAY RECOGNIZE A THIRD PARTY AS THE SUCCESSOR IN INTEREST TO A GOVERNMENT CONTRACT WHERE THE THIRD PARTY'S INTEREST IS INCIDENTAL TO THE TRANSFER OF ALL THE ASSETS OF THE CONTRACTOR, OR ALL THAT PART OF THE CONTRACTOR'S ASSETS INVOLVED IN THE PERFORMANCE OF THE CONTRACT. EXAMPLES INCLUDE, BUT ARE NOT LIMITED TO:

"(I) SALE OF SUCH ASSETS; ***."

BASED ON THE FOREGOING, WE FIND NO REASON TO OBJECT TO THE PROPOSED NOVATION. ACCORDINGLY, YOUR PROTEST IS DENIED.

ENCLOSED IS A COPY OF OUR DECISION OF TODAY TO DYNAMIC ELECTRO SYSTEMS, INCORPORATED, REGARDING THE SAME MATTER.