B-181221, APR 29, 1975, 54 COMP GEN 913

B-181221: Apr 29, 1975

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SMALL BUSINESS ADMINISTRATION - CONTRACTS - SUFFICIENCY OF EVALUATION - PROCURING ACTIVITY PROTEST AGAINST AWARD OF CONTRACT TO SMALL BUSINESS ADMINISTRATION (SBA) UNDER SECTION 8(A) OF SMALL BUSINESS ACT ON BASIS THAT PROCURING ACTIVITY DID NOT PROPERLY EVALUATE SBA REQUEST FOR 8(A) AWARD IS WITHOUT MERIT SINCE RECORD INDICATES THAT REQUIRED EVALUATION ESSENTIALLY WAS MADE AND AWARD WAS NOT CONTRARY TO ANY LAW OR REGULATION. SMALL BUSINESS ADMINISTRATION - CONTRACTS - SUBCONTRACTING - ADMINISTRATION OF PROGRAM PROTEST AGAINST AWARD OF SECTION 8(A) SUBCONTRACT IN WHICH IT IS ALLEGED THAT SMALL BUSINESS ADMINISTRATION'S (SBA) SUBCONTRACT AWARD WAS CONTRARY TO ITS POLICIES REGARDING BOTH THE CONTINUATION OF SUBCONTRACTOR IN 8(A) PROGRAM AND THE AMOUNT OF BUSINESS DEVELOPMENT EXPENSE TO BE PAID IS DENIED SINCE THESE ARE POLICY MATTERS WHICH ARE FOR DETERMINATION BY SBA AND WHICH ARE NOT SUBJECT TO LEGAL REVIEW BY GENERAL ACCOUNTING OFFICE (GAO).

B-181221, APR 29, 1975, 54 COMP GEN 913

SMALL BUSINESS ADMINISTRATION - CONTRACTS - SUFFICIENCY OF EVALUATION - PROCURING ACTIVITY PROTEST AGAINST AWARD OF CONTRACT TO SMALL BUSINESS ADMINISTRATION (SBA) UNDER SECTION 8(A) OF SMALL BUSINESS ACT ON BASIS THAT PROCURING ACTIVITY DID NOT PROPERLY EVALUATE SBA REQUEST FOR 8(A) AWARD IS WITHOUT MERIT SINCE RECORD INDICATES THAT REQUIRED EVALUATION ESSENTIALLY WAS MADE AND AWARD WAS NOT CONTRARY TO ANY LAW OR REGULATION. SMALL BUSINESS ADMINISTRATION - CONTRACTS - SUBCONTRACTING - ADMINISTRATION OF PROGRAM PROTEST AGAINST AWARD OF SECTION 8(A) SUBCONTRACT IN WHICH IT IS ALLEGED THAT SMALL BUSINESS ADMINISTRATION'S (SBA) SUBCONTRACT AWARD WAS CONTRARY TO ITS POLICIES REGARDING BOTH THE CONTINUATION OF SUBCONTRACTOR IN 8(A) PROGRAM AND THE AMOUNT OF BUSINESS DEVELOPMENT EXPENSE TO BE PAID IS DENIED SINCE THESE ARE POLICY MATTERS WHICH ARE FOR DETERMINATION BY SBA AND WHICH ARE NOT SUBJECT TO LEGAL REVIEW BY GENERAL ACCOUNTING OFFICE (GAO). HOWEVER, SINCE THE MATTERS RAISED IN THE PROTEST CONCERN SBA'S ADMINISTRATION OF SECTION 8(A) PROGRAM, THEY WILL BE CONSIDERED BY GAO IN ITS CONTINUING AUDIT REVIEW OF SBA ACTIVITIES. CONTRACTS - PROTESTS - TIMELINESS ALLEGATION THAT SECTION 8(A) AWARD OF 50 PERCENT OF SOLICITATION QUANTITY OF CARGO NETS VIOLATES SBA'S POLICY OF RESTRICTING SECTION 8(A) AWARDS TO NO MORE THAN 20 PERCENT OF GOVERNMENT'S TOTAL PURCHASES OF AN ITEM IS UNTIMELY RAISED UNDER 4 CFR 20.2(A) SINCE SOLICITATION PROVIDED THAT SUCH AN AWARD MAY BE MADE AND PROTESTER DID NOT FILE ITS PROTEST UNTIL AFTER BID OPENING AND AWARD. MOREOVER, THE 20 PERCENT LIMITATION IS A MATTER OF SBA POLICY WHICH IT MAY WAIVE OR REVOKE IF IT CHOOSES TO DO SO.

IN THE MATTER OF KINGS POINT MANUFACTURING COMPANY, INC., APRIL 29, 1975:

KINGS POINT MANUFACTURING COMPANY, INC. (KINGS POINT) HAS PROTESTED AGAINST THE AWARD OF A CONTRACT BY THE AIR FORCE TO THE SMALL BUSINESS ADMINISTRATION (SBA) UNDER SECTION 8(A) OF THE SMALL BUSINESS ACT, 15 U.S.C. 637(A)(1) (1970), AND THE AWARD OF A SUBCONTRACT BY SBA TO THE WATTS MANUFACTURING COMPANY (WATTS). IT IS KINGS POINT'S CONTENTION THAT THE AIR FORCE DID NOT COMPLY WITH THE PROVISIONS OF THE ARMED SERVICES PROCUREMENT REGULATIONS (ASPR) AND THAT SBA DID NOT ADHERE TO ITS INTERNAL PROCEDURES AND POLICIES.

THE PROTEST ARISES OUT OF A PROCUREMENT FOR TOP AND SIDE CARGO TIEDOWN NETS. THE SOLICITATION (IFB NO. F09603-74-B-0888 ISSUED FEBRUARY 26, 1974, BY ROBINS AIR FORCE BASE, GEORGIA) CALLED FOR ALTERNATE BIDS, WITH ALTERNATE I FOR 6,000 TOP NETS AND 8,500 SIDE NETS AND ALTERNATE II FOR 12,000 TOP NETS AND 17,000 SIDE NETS. THE SOLICITATION STATED THAT THE AIR FORCE WOULD PROCURE EITHER ALTERNATE I OR ALTERNATE II "DEPENDENT UPON RECEIPT BY THE AIR FORCE OF A FIRM COMMITMENT FROM THE SMALL BUSINESS ADMINISTRATION (SBA) OF A SECTION 8(A) DEFINITIVE CONTRACT FOR AN IDENTICAL QUANTITY OF ITEMS SET FORTH UNDER ALTERNATE BID I. *** IF NO SBA COMMITMENT IS RECEIVED, THE AWARD *** WILL BE FOR ITEMS SET FORTH *** UNDER ALTERNATE BID II."

AFTER BID OPENING ON MARCH 26, 1974, SBA FURNISHED THE AIR FORCE WITH THE SECTION 8(A) COMMITMENT. AS A RESULT, A CONTRACT FOR THE ALTERNATE I QUANTITIES WAS AWARDED TO KINGS POINT (THE LOW BIDDER UNDER BOTH ALTERNATIVES) AND A CONTRACT FOR LIKE QUANTITIES WAS AWARDED TO SBA. SBA THEN SUBCONTRACTED THE WORK TO WATTS. THE KINGS POINT CONTRACT UNIT PRICES WERE $51.40 FOR TOP NETS AND $47.40 FOR SIDE NETS. THE UNIT PRICES IN THE CONTRACTS AWARDED TO SBA AND TO WATTS WERE $72.22 FOR TOP NETS AND $63.52 FOR SIDE NETS. THESE HIGHER PRICES RESULTED FROM SBA'S ALLOWANCE OF A BUSINESS DEVELOPMENT EXPENSE FOR WATTS. THESE PRICE DIFFERENTIALS WERE ASSUMED AND FUNDED BY SBA UNDER THE SECTION 8(A) PROGRAM.

KINGS POINT CONTENDS THAT THE AWARD TO WATTS, THROUGH SBA, WAS IMPROPER BECAUSE WATTS SHOULD NOT BE ELIGIBLE FOR CONTRACTS UNDER THE SECTION 8(A) PROGRAM, BECAUSE THE PRICE DIFFERENTIAL PAID TO WATTS WAS UNREASONABLY LARGE, AND BECAUSE THE AWARD TO WATTS WAS CONTRARY BOTH TO THE SBA POLICY OF RESTRICTING SECTION 8(A) CONTRACTING TO NOT MORE THAN 20 PERCENT OF THE GOVERNMENT'S TOTAL PURCHASES OF LIKE OR SIMILAR ITEMS AND TO THE PROVISIONS OF ASPR 1-705.5 (1974 ED.).

SECTION 8(A) OF THE SMALL BUSINESS ACT EMPOWERS SBA TO ENTER INTO CONTRACTS WITH ANY GOVERNMENT AGENCY HAVING PROCURING POWERS, AND TO ARRANGE FOR THE PERFORMANCE OF SUCH CONTRACTS BY LETTING SUBCONTRACTS TO SMALL BUSINESS OR OTHER CONCERNS. SEE 53 COMP. GEN. 143 (1973). SBA HAS IMPLEMENTED THIS AUTHORITY BY DETERMINING TO "ASSIST SMALL BUSINESS CONCERNS OWNED AND CONTROLLED BY SOCIALLY OR ECONOMICALLY DISADVANTAGED PERSONS TO ACHIEVE A COMPETITIVE POSITION IN THE MARKETPLACE." 13 CFR SEC. 124.8-1(B). THE LEGALITY AND CONSTITUTIONALITY OF SBA'S IMPLEMENTING PROGRAM HAS BEEN UPHELD. RAY BAILLIE TRASH HAULING, INC. V. KLEPPE, 477 F.2D 696 (5TH CIR. 1973).

ASPR 1-705.5(B)(1) STATES THAT IT IS THE GENERAL POLICY OF THE DEPARTMENT OF DEFENSE (DOD) "TO ENTER INTO CONTRACTS WITH THE SBA TO FOSTER OR ASSIST IN THE ESTABLISHMENT OR THE GROWTH OF SMALL BUSINESS CONCERNS AS DESIGNATED BY SBA SO THAT THESE CONCERNS MAY BECOME SELF SUSTAINING, COMPETITIVE ENTITIES WITHIN A REASONABLE PERIOD OF TIME." ASPR 1-705.5(A) FURTHER PROVIDES THAT CONTRACTING OFFICERS ARE AUTHORIZED, IN THEIR DISCRETION, TO AWARD CONTRACTS TO SBA WHEN SBA CERTIFIES THAT IT IS "COMPETENT TO PERFORM A SPECIFIC CONTRACT." ASPR 1-705.5(C) THEN SETS FORTH, IN PERTINENT PART, THE FOLLOWING PROCEDURES:

(1) SUPPLIES, SERVICES AND RESEARCH AND DEVELOPMENT.

(A) IN CONTRACTS FOR SUPPLIES, SERVICES AND RESEARCH AND DEVELOPMENT, IT IS THE STATED POLICY OF THE SBA TO CONTRACT WITH ONLY THOSE SMALL FIRMS WHICH HAVE SUBMITTED A WRITTEN BUSINESS PLAN SPECIFICALLY OUTLINING A REASONABLE APPROACH TO THE ATTAINMENT OF THE POLICY OBJECTIVES OF (B). THIS BUSINESS PLAN, IF APPROVED BY THE SBA, WILL BE THE BASIS FOR DOD'S CONSIDERATION OF PARTICIPATION IN A SECTION 8(A) PROGRAM FOR THE FIRM. THE EXECUTION OF THIS POLICY, THE SBA WILL FURNISH TO THE SECRETARY OF THE APPROPRIATE DEPARTMENT, ATTENTION: ECONOMIC UTILIZATION ADVISOR, ITS REQUEST FOR A COMMITMENT TO SUPPORT THE APPROVED PLAN, SHOWING AT LEAST THE FOLLOWING INFORMATION:

(I) THE BACKGROUND AND OWNERSHIP OF THE FIRM;

(II) HOW AND WHEN THE FIRM IS EXPECTED TO BECOME A SELF-SUSTAINING, COMPETITIVE ENTITY;

(III) THE EXTENT TO WHICH PROCUREMENT ASSISTANCE IS NEEDED AND AN IDENTIFICATION OF THE REQUIREMENTS SOUGHT FROM THE DOD (THE IDENTIFICATION OF THE SUPPLIES OR SERVICES WHICH THE SBA MAY REQUIRE IN CONNECTION WITH A SMALL FIRM'S BUSINESS PLAN WILL BE DEVELOPED BY THE SBA REPRESENTATIVES. THIS MAY BE ACCOMPLISHED THROUGH LIAISON WITH APPROPRIATE PROCURING ACTIVITIES EITHER BEFORE OR AFTER THE SBA'S APPROVAL OF A SMALL FIRMS BUSINESS PLAN AS THE SBA MAY ELECT. ***); AND

(IV) IF THE FIRM IS CURRENTLY IN EXISTENCE, THE PRESENT PRODUCTION CAPACITY AND RELATED FACILITIES AND HOW ANY ADDITIONAL FACILITIES NEEDED WILL BE PROVIDED.

(B) THE DEPARTMENT CONCERNED WILL EVALUATE THE SBA'S REQUEST FOR A COMMITMENT TO SUPPORT THE BUSINESS PLAN APPROVED BY THE SBA AND DETERMINE WHETHER OR TO WHAT EXTENT THE DEPARTMENT CAN SUPPORT THE SBA REQUEST. ***

(C) AFTER THE SBA REQUESTED COMMITMENTS HAVE BEEN EVALUATED, THE DEPARTMENT CONCERNED, THROUGH THE ECONOMIC UTILIZATION ADVISOR, WILL NOTIFY THE OFFICE OF BUSINESS DEVELOPMENT, SBA, WASHINGTON, D.C., OR ITS DESIGNEE OF THE EXTENT TO WHICH IT APPEARS THAT CONTRACTS WILL BE PLACED WITH THE SBA AS REQUESTED. THIS NOTIFICATION REPRESENTS A FIRM COMMITMENT OF THE DOD TO NEGOTIATE WITH THE SBA, PROVIDED, THAT THERE IS NO MATERIAL CHANGE IN REQUIREMENTS, AVAILABILITY OF FUNDS, AND OTHER PERTINENT FACTORS. *** AIR FORCE BECAUSE WATTS, A PREVIOUS RECIPIENT OF CONTRACTS UNDER THE SECTION 8(A) PROGRAM, HAS FAILED TO BECOME A SELF-SUFFICIENT, COMPETITIVE ENTITY WITHIN A REASONABLE PERIOD OF TIME, AND BECAUSE THE AIR FORCE DID NOT EVALUATE THE WATTS BUSINESS PLAN. IT IS KINGS POINT'S BELIEF THAT THE CONTRACTING OFFICER COULD NOT HAVE PROPERLY EXERCISED HIS DISCRETION IN AWARDING A CONTRACT TO SBA FOR SUBCONTRACTING TO WATTS BECAUSE THE AIR FORCE DID NOT EVALUATE THE BUSINESS PLAN AND BECAUSE, IN LIGHT OF WATTS' PRIOR LENGTHY INVOLVEMENT WITH THE SECTION 8(A) PROGRAM, SUCH AN AWARD WOULD BE INCONSISTENT WITH THE PURPOSE OF THE PROGRAM. SUPPORT OF ITS ASSERTIONS, KINGS POINT HAS SUBMITTED DATA SHOWING THAT SBA HAS AWARDED WATTS IN EXCESS OF 25 CONTRACTS WORTH MORE THAN $18,000,000 SINCE 1968, AND THAT THESE CONTRACTS HAVE INCLUDED SIGNIFICANT AMOUNTS FOR BUSINESS DEVELOPMENT EXPENSE.

THE RECORD SHOWS THAT PRELIMINARY DISCUSSIONS BETWEEN SBA AND THE AIR FORCE INDICATED THE POSSIBILITY THAT A PORTION OF THE REQUIRED CARGO TIEDOWN NETS COULD BE OBTAINED THROUGH THE SECTION 8(A) PROGRAM. LETTER DATED FEBRUARY 27, 1974, SBA CERTIFIED TO THE AIR FORCE SMALL BUSINESS AND ECONOMIC UTILIZATION ADVISOR THAT IT WAS COMPETENT TO PERFORM A CONTRACT CALLING FOR THE MANUFACTURE OF 6,000 TOP NETS AND 8,500 SIDE NETS. THIS WAS FOLLOWED BY AN APRIL 4, 1974, COMMITMENT FROM SBA TO ACCEPT ON BEHALF OF WATTS A CONTRACT FOR THOSE QUANTITIES OF NETS, AND A SUBSEQUENT ASSUMPTION BY SBA OF THE BUSINESS DEVELOPMENT EXPENSE PORTION OF THE CONTRACT PRICES AGREED TO BY SBA AND WATTS. AWARD TO SBA WAS MADE ON MAY 2, 1974.

WHILE WE UNDERSTAND FROM SBA THAT IT HAS ISSUED OPERATING INSTRUCTIONS AND A "SAMPLE ASPR LETTER" WHICH PROVIDE FOR THE TRANSMITTAL TO DOD OF THE INFORMATION SET FORTH IN ASPR 1 705.5(C)(1)(A), WE UNDERSTAND FROM THE AIR FORCE THAT THIS INFORMATION IS NOT NORMALLY FURNISHED IT BY SBA AND WAS NOT FURNISHED IN THIS CASE. ACCORDING TO THE AIR FORCE, ADMINISTRATION OF THE SECTION 8(A) PROGRAM IS DECENTRALIZED AND DECISIONS TO AWARD SECTION 8(A) CONTRACTS ARE MADE USUALLY AS A RESULT OF INFORMAL CONTACTS BETWEEN AIR FORCE AND SBA FIELD PERSONNEL, WHICH ARE THEN FORMALIZED BY ISSUANCE OF SBA'S COMMITMENT. THESE INFORMAL CONTACTS, ACCORDING TO THE AIR FORCE, INCLUDE CONSIDERATION AND EVALUATION OF THE FEASIBILITY OF AN AWARD TO SBA'S PROPOSED SUBCONTRACTOR. THE AIR FORCE BELIEVES THAT THESE PRACTICES, WHICH WERE FOLLOWED HERE, COMPORT WITH ANY LEGAL REQUIREMENT OF ASPR 1-705.5(C) BECAUSE IN ESSENCE THE EVALUATION REFERRED TO IN ASPR 1- 705.5(C)(1)(B) IS MADE BEFORE ANY DECISION TO MAKE A SECTION 8(A) AWARD IS REACHED.

WE DO NOT BELIEVE THAT THE VALIDITY OF SECTION 8(A) AWARDS MADE BY THE AIR FORCE IS AFFECTED BECAUSE THE PROCEDURES FOLLOWED MAY NOT BE PRECISELY THOSE SET FORTH IN ASPR 1-705.5. THAT SECTION DOES NOT, FOR THE MOST PART, IMPOSE REGULATORY REQUIREMENTS ON THE AIR FORCE. RATHER, IT SETS FORTH, PRIMARILY AS A MATTER OF INFORMATION AND GUIDANCE, HOW SBA AND THE MILITARY DEPARTMENTS WILL INITIATE SECTION 8(A) CONTRACT NEGOTIATIONS. WHILE IT DOES SAY THAT "SBA WILL FURNISH *** ITS REQUEST FOR A COMMITMENT TO SUPPORT THE APPROVED PLAN, SHOWING AT LEAST THE FOLLOWING INFORMATION ***," THIS STATEMENT DOES NOT PURPORT TO IMPOSE ANY REQUIREMENT ON THE AIR FORCE AND CANNOT IMPOSE ANY REQUIREMENT ON SBA WHICH, AS A NON-DOD ACTIVITY, IS NOT SUBJECT TO PROVISIONS OF ASPR. FURTHERMORE, TO THE EXTENT THAT ASPR 1 705.5(C)(1)(B) DOES IMPOSE A REQUIREMENT FOR EVALUATION OF SBA'S REQUEST FOR A COMMITMENT, WE AGREE THAT, EVEN THOUGH THE AIR FORCE WAS NOT PROVIDED BY SBA WITH THE INFORMATION LISTED IN ASPR 1 705.5(C)(1)(A), IT IN EFFECT COMPLIED WITH THE INTENT OF THE EVALUATION REQUIREMENT WHEN, "IN ACCORDANCE WITH THE STANDARDS SET FORTH IN ASPR 1 705.5(C)(1)(B)," IT PERFORMED A "LIMITED REVIEW" TO DETERMINE THAT ITS NEEDS COULD BE SATISFIED BY MEANS OF A SECTION 8(A) AWARD TO WATTS.

WE ALSO DO NOT BELIEVE THAT THE CONTRACTING OFFICER WAS REQUIRED TO CONSIDER WATTS' LENGTHY INVOLVEMENT WITH THE SECTION 8(A) PROGRAM OR THE AMOUNT OF BUSINESS DEVELOPMENT EXPENSE PROPOSED BY SBA FOR THE WATTS' CONTRACT. ALTHOUGH ASPR 1-705.5(B)(1) RECITES THAT THE PURPOSE OF THE PROGRAM IS TO BRING SMALL BUSINESS CONCERNS TO A SELF SUSTAINING, COMPETITIVE LEVEL WITHIN A REASONABLE TIME, IT DOES NOT VEST IN CONTRACTING OFFICERS ANY INDEPENDENT AUTHORITY TO DETERMINE IF A PARTICULAR SECTION 8(A) AWARD WOULD BE CONSISTENT WITH THAT STATED PURPOSE. ON THE CONTRARY, SECTION 1-705.5(B)(1) STATES, THAT THE SMALL BUSINESS FIRMS TO BE ASSISTED BY MEANS OF SECTION 8(A) CONTRACTS WILL BE "DESIGNATED BY THE SBA," WHICH "IS EMPOWERED TO ARRANGE FOR THE PERFORMANCE OF SUCH CONTRACTS BY NEGOTIATING OR OTHERWISE LETTING CONTRACTS ***." SINCE IT IS CLEAR THAT THE SELECTION OF FIRMS FOR PARTICIPATION AND CONTINUATION IN THE SECTION 8(A) PROGRAM IS A MATTER FOR SBA, WE CANNOT CONCLUDE THAT THE CONTRACTING OFFICER WAS UNDER ANY OBLIGATION TO CONSIDER WHETHER WATTS, IF OTHERWISE CAPABLE OF PERFORMING THE CONTRACT, SHOULD BE CONTINUED AS A RECIPIENT OF SECTION 8(A) ASSISTANCE. SIMILARLY, SINCE THE AMOUNT OF BUSINESS DEVELOPMENT EXPENSE, IF ANY, TO BE PAID TO A SECTION 8(A) CONTRACTOR IS DETERMINED EXCLUSIVELY BY SBA AND IS NOW FUNDED ENTIRELY BY THAT AGENCY, WE FAIL TO SEE HOW THE CONTRACTING OFFICER WAS UNDER ANY OBLIGATION TO CONSIDER THAT MATTER. ACCORDINGLY, WE BELIEVE THAT THE CONTRACTING OFFICER DID NOT ABUSE HIS DISCRETION IN AWARDING A CONTRACT TO SBA, AND WE HAVE NO BASIS FOR OBJECTING TO THE PROTESTED AWARD INSOFAR AS THE ACTIONS OF THE AIR FORCE ARE CONCERNED.

THERE REMAINS FOR CONSIDERATION KINGS POINT'S CONTENTIONS THAT THE AWARD TO WATTS WAS IMPROPER BECAUSE IT WAS CONTRARY TO SBA POLICY AND BECAUSE THE AMOUNT OF BUSINESS DEVELOPMENT EXPENSE WAS UNREASONABLE. THESE CONTENTIONS ESSENTIALLY INVOLVE SBA'S ADMINISTRATION OF THE SECTION 8(A) PROGRAM. IN THE RAY BAILLIE CASE, SUPRA, IT WAS HELD THAT FIRMS WHICH ARE NOT ELIGIBLE FOR A SECTION 8(A) CONTRACT HAVE NO STANDING TO CHALLENGE SBA'S AWARDS OF SECTION 8(A) SUBCONTRACTS TO SPECIFIC FIRMS BECAUSE "WHATEVER THE OUTCOME *** THE PLAINTIFF WILL NOT BE DIRECTLY AFFECTED." 477 F.2D AT 710. IN ACCORD WITH THAT DECISION, WE HAVE DECLINED TO CONSIDER A CHALLENGE BY A NONELIGIBLE FIRM TO SBA'S AWARD OF A SUBCONTRACT TO ONE COMPANY RATHER THAN ANOTHER. MATTER OF KLEEN-RITE JANITORIAL SERVICE, INC., B-178752, MARCH 21, 1974. SEE ALSO MATTER OF CITY MOVING AND STORAGE COMPANY, INC., B-181167, AUGUST 16, 1974. IN THIS CASE, HOWEVER, IT APPEARS FROM THE RECORD THAT A SECTION 8(A) AWARD MAY WELL NOT HAVE BEEN MADE IF WATTS HAD NOT BEEN CONSIDERED ELIGIBLE FOR THE AWARD, SO THAT IT CANNOT BE SAID THAT KINGS POINT WAS NOT AFFECTED BY SBA'S DETERMINATION TO SUBCONTRACT TO WATTS. UNDER THESE CIRCUMSTANCES, WE DO NOT BELIEVE CONSIDERATION OF THE MATTERS RAISED BY KINGS POINT TO BE INAPPROPRIATE. KINGS POINT CONTENDS THAT WATTS HAS BEEN A SECTION 8(A) CONTRACTOR FOR AN UNREASONABLY LONG PERIOD OF TIME AND THAT ITS CONTINUANCE IN THE PROGRAM IS CONTRARY TO PROGRAM OBJECTIVES. SBA'S REGULATION STATES THAT:

A SECTION 8(A) CONCERN WHICH HAS SUBSTANTIALLY ACHIEVED THE OBJECTIVE OF ITS BUSINESS PLAN WILL BE NOTIFIED THAT ITS PARTICIPATION IN THE PROGRAM IS COMPLETED. THE JUDGMENT AS TO THE COMPLETION OF PROGRAM PARTICIPATION WILL BE MADE IN LIGHT OF THE PURPOSE OF THE PROGRAM.

IF THE OBJECTIVES AND GOALS SET FORTH IN THE BUSINESS PLAN ARE NOT BEING MET, THE CONCERN SHALL BE INFORMED WHAT CORRECTIVE MEASURES ARE NECESSARY. IN CASES WHERE IT IS DETERMINED, IN THE JUDGMENT OF SBA, THAT CONTINUED PARTICIPATION IN THE SECTION 8(A) PROGRAM WILL NOT FURTHER THE PROGRAM OBJECTIVES, THE CONCERN WILL BE NOTIFIED THAT ITS PARTICIPATION IN THE PROGRAM IS TERMINATED. 13 CFR SEC. 124.8-2(E).

SBA'S POLICY DOCUMENT IN EFFECT WHEN THE AWARD WAS MADE PROVIDES THAT "IN ORDER TO CONTINUE PARTICIPATING IN THE 8(A) PROGRAM, FIRMS MUST SHOW A PATTERN OF CONTINUING DEVELOPMENT CONSISTENT WITH THEIR CURRENT BUSINESS PLAN AS ACCEPTED BY SBA," AND THAT "WHERE IT BECOMES APPARENT TO SBA THAT CONTINUED SUBCONTRACT SUPPORT FROM THE 8(A) PROGRAM WILL NO LONGER FURTHER THE OBJECTIVES OF DEVELOPING A PROFITABLE COMPETITIVE BUSINESS *** THE 8(A) CONCERN WILL BE INFORMED OF THE DECISION TO WITHDRAW 8(A) SUPPORT ***." ALTHOUGH NEITHER THE REGULATION NOR THE POLICY DOCUMENT PROVIDES A SPECIFIC TIME FRAME FOR TERMINATION OF SECTION 8(A) SUPPORT, KINGS POINT ASSERTS THAT THE CONTINUATION OF WATTS IN THE SECTION 8(A) PROGRAM SINCE 1968 IS UNREASONABLE, NOT CONSISTENT WITH PROGRAM OBJECTIVES, AND IN CONFLICT WITH 1970 CONGRESSIONAL TESTIMONY BY SBA OFFICIALS TO THE EFFECT THAT SECTION 8(A) PROGRAM ASSISTANCE WILL BE PROVIDED FOR A MAXIMUM OF 3 YEARS TO ANY ONE FIRM.

NOTWITHSTANDING THAT TESTIMONY, CONGRESS HAS RECOGNIZED THAT IN PRACTICE SBA HAS NOT ADHERED TO A 3-YEAR MAXIMUM PERIOD IN ALL CASES. SEE H. REPORT NO. 93-873, 93RD CONGRESS, 2D SESS. 30. WE ALSO RECENTLY NOTED OUR CURRENT UNDERSTANDING THAT "IT IS THE SBA'S POLICY TO LIMIT 8(A) SUPPORT TO A THREE OR FIVE YEAR PERIOD. THAT POLICY IS IN ACCORDANCE WITH THE INTENT OF THE PROGRAM THAT PARTICIPATING FIRMS 'GRADUATE' BY BECOMING SELF SUFFICIENT." MATTER OF WALLACE AND WALLACE FUEL OIL COMPANY, INC., B- 182625, APRIL 1, 1975. IT IS CLEAR THAT SBA HAS NOT ADHERED TO THAT POLICY IN THE CASE OF WATTS. HOWEVER, THAT POLICY IS NOT MANDATED BY LAW OR REGULATION. WHAT IS REQUIRED BY REGULATION IS THAT CONTINUED PARTICIPATION OF A FIRM IN THE SECTION 8(A) PROGRAM BE TERMINATED WHEN THE FIRM'S CONTINUED PARTICIPATION WILL NOT FURTHER THE OBJECTIVES OF THE PROGRAM OR WHEN THE FIRM HAS SUBSTANTIALLY ACHIEVED THE OBJECTIVES OF ITS BUSINESS PLAN. IN BOTH SITUATIONS, THE DECISION TO TERMINATE IS A JUDGMENTAL MATTER FOR SBA. SEE, IN THIS REGARD, MATTER OF SEARCH PATROL AGENCY, INC., COASTAL SERVICES, INC., B-182403, APRIL 3, 1975, IN WHICH WE FOUND NO BASIS FOR QUESTIONING SBA'S DETERMINATION TO TERMINATE A FIRM FROM THE SECTION 8(A) PROGRAM. HERE SBA HAS DETERMINED THAT WATTS SHOULD NOT BE TERMINATED AS A RECIPIENT OF SECTION 8(A) ASSISTANCE. WE FIND NO BASIS TO QUESTION THAT DETERMINATION.

KINGS POINT ALSO CHALLENGES THE AWARD BECAUSE OF THE ALLEGEDLY EXCESSIVE BUSINESS DEVELOPMENT EXPENSE ALLOWED BY SBA IN THE CONTRACT AWARD TO WATTS. SBA POLICY NO. 60-40, REVISION 1, DATED APRIL 15, 1973, AN INTERNAL POLICY DOCUMENT WHICH WAS IN EFFECT AT THE TIME OF THIS PROCUREMENT, STATES THAT "SUBCONTRACTS WILL BE NEGOTIATED AT PRICES WHICH ARE FAIR AND REASONABLE TO BOTH THE GOVERNMENT AND THE 8(A) SUBCONTRACTOR." IT PROVIDES, HOWEVER, THAT PRICES MAY INCLUDE AN AMOUNT OVER AND ABOVE COMPETITIVE MARKET PRICES IF SUCH AN AMOUNT IS "NEEDED TO PERMIT THE 8(A) SUBCONTRACTOR TO PERFORM PROFITABLY," BUT THAT THIS AMOUNT, WHICH IS REFERRED TO AS A BUSINESS DEVELOPMENT EXPENSE, "MAY NOT BE USED TO SUBSIDIZE A FIRM SOLELY TO PERMIT IT TO PERFORM ON A GIVEN SUBCONTRACT." KINGS POINT ASSERTS THAT THE 40 PERCENT DIFFERENTIAL PAID TO WATTS AS A BUSINESS DEVELOPMENT EXPENSE ON THIS CONTRACT IS UNREASONABLY HIGH, ESPECIALLY WHEN CONSIDERED IN LIGHT OF THE BUSINESS DEVELOPMENT EXPENSE PAID TO WATTS ON PRIOR SECTION 8(A) CONTRACTS, AND THAT THIS ALONE SHOULD RENDER THE AWARD IMPROPER.

WE CANNOT ACCEPT THIS ARGUMENT. THERE IS NO LEGAL LIMITATION ON THE AMOUNT OF BUSINESS DEVELOPMENT EXPENSE WHICH MAY BE PAID ON A PARTICULAR CONTRACT OR TO A PARTICULAR CONTRACTOR. IN ADMINISTERING THE SECTION 8(A) PROGRAM, SBA DETERMINES HOW MUCH, IF ANY, BUSINESS DEVELOPMENT EXPENSE IS REASONABLY NECESSARY TO ALLOW A PROPOSED SUBCONTRACTOR TO PERFORM AT A PROFITABLE LEVEL. IN MANY CASES, NO BUSINESS DEVELOPMENT EXPENSE IS ALLOWED. IN OTHERS, IT HAS BEEN ALLOWED IN AMOUNTS RANGING TO MORE THAN 70 PERCENT, ALTHOUGH THE AVERAGE BUSINESS DEVELOPMENT EXPENSE PERCENTAGE IS SUBSTANTIALLY LOWER. SEE HEARINGS BEFORE THE SUBCOMMITTEE ON MINORITY SMALL BUSINESS ENTERPRISE OF THE HOUSE SELECT COMMITTEE ON SMALL BUSINESS PURSUANT TO H. RES. 5 AND 19, 92ND CONG., 2D SESS. 387, 440-442 AND H. REPORT NO. 92-1615, 92ND CONG., 2D SESS. 14. HERE DOCUMENTS FURNISHED BY SBA REVEAL THAT THE PROPOSED BUSINESS DEVELOPMENT EXPENSE FOR WATTS EXCEEDED "NORMAL GUIDELINES" AND THEREFORE WAS REFERRED BY SBA'S REGIONAL OFFICE TO SBA'S GOVERNMENT CONTRACTS DIVISION FOR APPROVAL. THE DOCUMENTS FURTHER SHOW THAT THE PROPOSED BUSINESS DEVELOPMENT EXPENSE WAS APPROVED AS REASONABLE AFTER EVALUATION WAS MADE OF THE COST OF MATERIAL, LABOR AND OVERHEAD. ALTHOUGH KINGS POINT HAS SUGGESTED OTHERWISE, THE FILE SHOWS THAT A SIGNIFICANT PORTION OF THE BUSINESS DEVELOPMENT EXPENSE ALLOWED RESULTED FROM THE APPARENT HIGH COSTS TO WATTS OF MATERIAL NEEDED TO PERFORM THE CONTRACT.

FINALLY, KINGS POINT CLAIMS THAT THE AWARD TO WATTS VIOLATES SBA'S POLICY OF RESTRICTING SECTION 8(A) CONTRACT AWARDS TO 20 PERCENT OF THE GOVERNMENT'S TOTAL PURCHASES OF SIMILAR ITEMS. SBA'S REGULATIONS STATED THAT IN SELECTING PROPOSED PROCUREMENTS SUITABLE FOR PERFORMANCE BY SECTION 8(A) CONCERNS, SBA WILL CONSIDER "THE PERCENTAGE OF ALL SIMILAR CONTRACTS AWARDED UNDER THE SECTION 8(A) PROGRAM OVER A RELEVANT PERIOD OF TIME." SBA POLICY NO. P. 60-40, REVISION 1, SUPRA, STATES THAT SBA WILL NOT SEEK OR ACCEPT A SECTION 8(A) CONTRACT WHERE:

(1) THE AMOUNT CONSIDERED FOR 8(A) CONTRACTING, WHETHER INDIVIDUALLY OR COLLECTIVELY, IS EXCESSIVE IN RELATION TO THE TOTAL PURCHASES OF LIKE OR SIMILAR PRODUCTS, OR SERVICES PROCURED BY THE FEDERAL GOVERNMENT. QUANTITY IN EXCESS OF 20 PERCENT MAY BE REQUESTED WITHOUT THE APPROVAL OF THE ASSOCIATE ADMINISTRATOR FOR PROCUREMENT AND MANAGEMENT ASSISTANCE.

KINGS POINT CLAIMS THAT THE WATTS CONTRACT REPRESENTS 50 PERCENT OF THE GOVERNMENT'S TOTAL PURCHASES.

OUR BID PROTEST PROCEDURES REQUIRE THAT PROTESTS CONCERNING SOLICITATION DEFECTS WHICH ARE APPARENT PRIOR TO BID OPENING MUST BE FILED PRIOR TO BID OPENING. 4 CFR SEC. 20.2(A). HERE THE SOLICITATION CLEARLY INDICATED THAT ANY AWARD MADE TO SBA WOULD BE FOR 50 PERCENT OF THE CARGO NETS TO BE ACQUIRED IN THIS PROCUREMENT. THEREFORE, THIS ISSUE SHOULD HAVE BEEN RAISED PRIOR TO BID OPENING. KINGS POINT, HOWEVER, DID NOT FILE ITS PROTEST UNTIL AFTER IT RECEIVED ITS AWARD. ACCORDINGLY, THE PROTEST ON THIS ISSUE IS UNTIMELY. HOWEVER, WE POINT OUT THAT SBA DENIES THAT THE AWARD TO WATTS REPRESENTS A VIOLATION OF THE 20 PERCENT LIMITATION AND CLAIMS THAT, IN FACT, THE WATTS CONTRACT "COMBINED WITH ALL OTHER SUBCONTRACTS EXECUTED UNDER THE 8(A) PROGRAM DURING THE RELEVANT TIME FRAME DID NOT EXCEED 20% OF THE TOTAL PURCHASES OF LIKE OR SIMILAR ITEMS PROCURED BY THE FEDERAL GOVERNMENT." ACCORDING TO SBA, THE PHRASE "LIKE OR SIMILAR PRODUCTS" REFERS NOT ONLY TO CARGO TIEDOWN NETS, BUT ALSO TO OTHER ITEMS WHICH ARE SIMILAR WITH RESPECT TO "END POINT USAGE OF THE ITEM (CARGO TIEDOWN), MATERIAL USED (NYLON WEBBING OR CANVAS DUCK), AND THE MANUFACTURING PROCESS INVOLVED (CUT AND SEW)." IN SBA'S VIEW, ITEMS SIMILAR TO CARGO TIEDOWN NETS INCLUDE SLINGS, SHOULDER HARNESSES, AERIAL PICKUP AND DELIVERY EQUIPMENT, PARACHUTES, SAFETY BELTS, AND CARGO BAGS. WE ALSO NOTE THAT EVEN IF THE 20 PERCENT LIMITATION WAS EXCEEDED, IT WOULD NOT RENDER THE WATTS CONTRACT ILLEGAL, SINCE SBA WAS NOT IRREVOCABLY BOUND BY ITS POLICY AND COULD WAIVE OR REVOKE IT IF IT CHOSE TO DO SO. MATTER OF KLEEN-RITE JANITORIAL SERVICE, INC., SUPRA. (SBA DID, IN FACT, ELIMINATE ALL REFERENCE TO A PERCENTAGE LIMITATION IN ITS NEW INTERNAL POLICY DOCUMENT WHICH BECAME EFFECTIVE NOVEMBER 14, 1974.)

FOR THE ABOVE REASONS, KINGS POINT'S PROTEST IS DENIED. HOWEVER, THE RECORD DOES INDICATE THAT ONE PARTICULAR FIRM, WATTS, HAS BEEN A MAJOR BENEFICIARY OF SECTION 8(A) CONTRACT ASSISTANCE SINCE INITIATION OF THE PROGRAM. THEREFORE, SINCE IN ESSENCE KINGS POINT'S VARIOUS ASSERTIONS REGARDING THE IMPROPRIETY OF THIS ASSISTANCE RELATES TO PROPER ADMINISTRATION OF THE PROGRAM RATHER THAN TO THE LEGALITY OF THE PROTESTED AWARD, THE MATTER WILL BE REFERRED TO OUR AUDIT STAFF FOR CONSIDERATION IN OUR CONTINUING REVIEW OF SBA ACTIVITIES.