B-182625, APR 1, 1975

B-182625, APR 1, 1975

INCUMBENT 8(A) FUEL SUPPLIER'S ARGUMENT THAT FEDERAL ENERGY ADMINISTRATION POLICIES RESTRICTING OPEN MARKET COMPETITION REQUIRE THAT SMALL BUSINESS ADMINISTRATION (SBA) CONTINUE TO PROVIDE PROTESTER ITS FORMER LEVEL OF ASSISTANCE IS WITHOUT MERIT. ALLOCATION OF 8(A) SUBCONTRACTS IS A MATTER WITHIN SBA'S ADMINISTRATIVE DISCRETION.

WALLACE AND WALLACE FUEL OIL COMPANY, INC.:

WALLACE AND WALLACE FUEL OIL COMPANY (WALLACE) PROTESTS THE SMALL BUSINESS ADMINISTRATION'S (SBA) DETERMINATION NOT TO AWARD IT SPECIFIC ITEMS OF FUEL OIL REQUIREMENTS UNDER DEFENSE FUEL SUPPLY CONTRACT DSA 600- 75-0002. WALLACE IS A MINORITY OWNED SMALL BUSINESS WHICH HAS PARTICIPATED IN THE SBA'S SECTION 8(A) PROGRAM FOR THE PAST FOUR YEARS. THE PURPOSE OF THAT PROGRAM, AS SET FORTH AT 13 C.F.R. 124.8 1(B) (1974 ED.), IS TO ASSIST SMALL BUSINESS CONCERNS OWNED OR CONTROLLED BY SOCIALLY OR ECONOMICALLY DISADVANTAGED PERSONS TO ACHIEVE A COMPETITIVE POSITION IN THE MARKET PLACE.

UNDER ITS PREVIOUS 8(A) CONTRACT (DSA 600-74-D-2245) WALLACE WAS THE SUPPLIER OF SEVEN ITEMS OF FUEL OIL REQUIREMENTS. ITS PROTEST ARISES IN CONNECTION WITH SBA'S PROPOSAL TO AWARD TO FOUR OTHER 8(A) FIRMS REQUIREMENTS OF SOME FIVE MILLION GALLONS WHICH WALLACE HAD PREVIOUSLY PROVIDED. THE PROTESTER CLAIMS THAT THE SBA'S DETERMINATION WAS IMPROPER IN VIEW OF ITS RELIANCE UPON CONTINUED 8(A) SUPPORT AND IN LIGHT OF THE FEDERAL ENERGY ADMINISTRATION (FEA) FUEL ALLOCATION RESTRICTIONS, WHICH IT EXPLAINS AS FOLLOWS:

"IN RELIANCE UPON ITS PAST CONTRACTS WITH SBA AND ITS EXPECTATIONS OF CONTINUED PARTICIPATION, WALLACE AND WALLACE HAS MADE CONSIDERABLE CAPITAL EXPENDITURES, PARTICULARLY FOR ROLLING STOCK, IN ORDER TO CONTINUE TO PERFORM ITS CONTRACTS. WITHOUT THE INCOME FROM THESE CONTRACTS, THE DEBT INCURRED FOR THE ABOVE EXPENSES CANNOT BE MET. OF PRIME IMPORTANCE IN THIS REGARD, IS THE DIFFICULTY WHICH WALLACE AND WALLACE, AS A FUEL SUPPLIER, WOULD HAVE IN SECURING REPLACEMENT CONTRACTS FOR THOSE SBA IS ATTEMPTING TO WITHDRAW.

"THE FEDERAL ENERGY ADMINISTRATION HAS ESTABLISHED A SUPPLIER/PURCHASER RELATIONSHIP, 10 C.F.R. SEC. 211.9, CCH FED. ENERGY GUIDELINES, PARA. 20,660 (SEPTEMBER 12, 1974), WHEREBY A SUPPLIER OF FUEL OIL IS REQUIRED TO SUPPLY ALL PURCHASERS WHICH PURCHASED OR OBTAINED FUEL OIL FROM THAT SUPPLIER DURING 1972. THIS THEREBY PREVENTS WALLACE FROM OPENLY COMPETING FOR OTHER CONTRACTS AS THE REGULATION PROHIBITS A PURCHASER FROM CONTRACTING WITH A NEW SUPPLIER WITHOUT CONCURRENCE OF ALL PARTIES AND APPROVAL OF THE FEA."

THE PROTESTER'S CONTENTION THAT IT WAS IMPROPER FOR THE SBA TO REDUCE ITS ALLOCATION OF 8(A) FUEL REQUIREMENTS IN THE FACE OF FEA REGULATIONS RESTRICTING COMPETITION IN THE OPEN MARKET ASSUMES SOME INDEFINITE OBLIGATION ON THE PART OF THE SBA TO CONTINUE THE LEVEL OF ITS PREVIOUS SUPPORT OF INCUMBENT FUEL SUPPLIERS.

THE SBA DETERMINED TO REALLOCATE ITS FUEL REQUIREMENTS AND REDUCE WALLACE'S VOLUME OF 8(A) BUSINESS BY SOME 20 PERCENT. THE SBA EXPLAINS THE BASIS FOR ITS DETERMINATION TO MAKE THIS REDUCTION AS FOLLOWS:

"REGARDING THE INSTANT CASE, THE FEDERAL ENERGY ADMINISTRATION (FEA) PETROLEUM ALLOCATIONS AND PRICE REGULATIONS, DATED JANUARY 15, 1974, IMPACTED THE SMALL BUSINESS ADMINISTRATION'S 8(A) PROGRAM AS RELATED TO FUEL OIL CONTRACTORS. THE EFFECT OF THESE REGULATIONS WAS TO PRECLUDE SBA FROM CONTRACTING UNDER 8(A) AUTHORITY WITH ANY FIRM UNLESS THAT FIRM HAD BEEN THE 'BASE PERIOD,' I.E., THE CALENDAR YEAR 1973 SUPPLIER FOR RESIDUAL FUEL OIL, 1972 FOR MIDDLE DISTILLATES.

"AFTER REVIEWING THE FEA REGULATIONS, SBA RECOGNIZED THAT, UNLESS AN EXCEPTION COULD BE OBTAINED, A NUMBER OF 8(A) FUEL OIL SUPPLIERS WOULD EXPERIENCE DIFFICULTY. ACCORDINGLY, DURING JANUARY 1974, SBA INITIATED A PROJECT TO OBTAIN RELIEF FROM THE FEA REGULATIONS FOR APPROXIMATELY 20 ELIGIBLE DISADVANTAGED FIRMS THROUGHOUT THE COUNTRY.

"ON APRIL 15, 1974, AFTER NUMEROUS MEETINGS BETWEEN FEA AND SBA PERSONNEL, WE REQUESTED AN ACROSS-THE-BOARD EXEMPTION TO THE FEA REGULATIONS FOR THE FIRMS NATIONWIDE WHICH HAD HELD 8(A) CONTRACTS PRIOR TO JANUARY 15, 1974, INCLUDING WALLACE AND WALLACE, AND 'ALL FIRMS APPROVED IN THE FUTURE FOR 8(A) PROGRAM PARTICIPATION.' SBA WAS ALSO ATTEMPTING TO ASSIST OTHER FIRMS, SOME OF WHOM HAD BEEN AWAITING SBA 8(A) ASSISTANCE, AND IT WAS OUR UNDERSTANDING, THAT WITHOUT RELIEF FROM THE FEA REGULATIONS THEY COULD NOT SURVIVE. ON MAY 10, 1974, FEA ISSUED EXCEPTIONS FOR SOME FIRMS INCLUDING WALLACE AND WALLACE, WHILE DENYING RELIEF FOR OTHER FIRMS.

"IN VIEW OF THESE CONSTRAINTS WHICH, IN EFFECT, LIMITED THE 8(A) PROGRAM TO A TOTAL 'REQUIREMENT' OF 27 MILLION GALLONS IN THE NEW YORK AREA, WE CHOSE TO REDISTRIBUTE THIS GALLONAGE TO SEVEN FIRMS IN THE NEW YORK AREA (3 OLD AND 4 NEW ENTRIES) WHEREAS IN 1973-1974 THE REQUIREMENT HAD BEEN ALLOCATED TO ONLY THE THREE OLD FIRMS (WALLACE AND WALLACE, VANGUARD, AND AL JONES). OUR OBVIOUS PURPOSE WAS TO DISTRIBUTE THE AVAILABLE 'REQUIREMENT' IN THE MOST EQUITABLE MANNER IN ORDER TO ASSIST THE MAXIMUM NUMBER OF ELIGIBLE 8(A) FIRMS.

"AS A RESULT OF THE FOREGOING, THE PROPOSED DISTRIBUTION OF 8(A) FUEL OIL (GALLON) REQUIREMENTS FOR 74/75 (WITH 73/74 NOTED FOR COMPARISON) WOULD BE AS FOLLOWS:

73/74 74/75

WALLACE 25,505,000 15,405,000

AL JONES 1,994,000 2,175,000

VANGUARD 4,323,000 3,267,000

PEOPLES - 335,000

TRI-PAR - 3,088,000

EBONY - 2,689,000

WILLIAMS - 253,305

TOTAL 31,822,000* 27,214,205*"

WALLACE'S ARGUMENT IS ESSENTIALLY THAT THE SBA'S REALLOCATION DETERMINATION WAS ARBITRARILY MADE WITHOUT PROPER REGARD TO THE COMMERCIAL CONSEQUENCES OF THE FEA'S POLICIES AND REGULATIONS GOVERNING FUEL SUPPLY. IN OUR OPINION THE PORTION OF SBA'S REPORT QUOTED ABOVE REFUTES ANY CONTENTION THAT IT DISREGARDED THE FEA'S GUIDELINES. HOWEVER, IT APPEARS THAT THE SBA AND THE PROTESTER DIFFERENTLY CONSTRUE THE IMPACT OF THOSE POLICIES AS THEY RELATE TO THE SBA'S STATUTORY DUTY TO "AID, COUNSEL, ASSIST AND PROTECT THE INTEREST OF SMALL BUSINESS CONCERNS TO INSURE THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS OR SUBCONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT ARE PLACED WITH SMALL BUSINESS ENTERPRISES." THE PROTESTER VIEWS THAT OBLIGATION AS ONE OF SUSTAINING CURRENT 8(A) PARTICIPANTS, WHILE THE SBA SEES ITS OBLIGATION AS ONE OF ASSISTING AS MANY ELIGIBLE 8(A) CONCERNS AS PRACTICABLE. AS EXPRESSED AT 13 C.F.R. 124.8-1(B)(1974 ED.) THE PURPOSE OF THE 8(A) PROGRAM IS "TO ASSIST SMALL BUSINESS FIRMS OWNED OR CONTROLLED BY SOCIALLY OR ECONOMICALLY DISADVANTAGED PERSONS TO ACHIEVE A COMPETITIVE POSITION IN THE MARKET PLACE." UNDER THE PROCEDURES CONTAINED IN THE REGULATIONS AN ELIGIBLE FIRM IS REQUIRED TO SUBMIT A BUSINESS PLAN WHICH WILL DEMONSTRATE THAT 8(A) ASSISTANCE WILL "FOSTER ITS PARTICIPATION IN THE ECONOMY AS A SELF SUSTAINING PROFIT ORIENTED SMALL BUSINESS." THAT SECTION CONTAINS THE VERY CLEAR STATEMENT THAT ACCEPTANCE OR APPROVAL OF A BUSINESS PLAN BY SBA WILL IN NO EVENT BE CONSTRUED AS A COMMITMENT TO AWARD A SINGLE CONTRACT OR A CONTINUING SERIES OF CONTRACTS, AND IN FACT WE UNDERSTAND THAT THE SBA IS UNABLE TO PROVIDE ANY ASSISTANCE AT ALL TO MANY OF THE FIRMS SUBMITTING APPROVED BUSINESS PLANS.

IN WALLACE'S CASE, THERE IS AN ADDITIONAL FACTOR FOR CONSIDERATION WHICH MAKES THE JUSTIFICATION FOR ITS RELIANCE ON CONTINUING 8(A) SUPPORT QUESTIONABLE. THAT IS THE FACT THAT IT HAS THUS FAR ENJOYED 8(A) ASSISTANCE FOR FOUR YEARS. AT PRESENT WE UNDERSTAND 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. IN THIS CONNECTION, SMALL BUSINESS POLICY NO. 60-40, REVISION 1, EFFECTIVE AUGUST 1, 1973, PROVIDES:

"1. PURPOSE

THE AUTHORITY OF SECTION 8(A) OF THE SMALL BUSINESS ACT WILL BE USED, TO THE FULLEST EXTENT THAT AVAILABLE RESOURCES PERMIT, TO ASSIST IN THE EXPANSION AND DEVELOPMENT OF PROFIT-ORIENTED SMALL BUSINESS CONCERNS OWNED AND CONTROLLED BY ELIGIBLE DISADVANTAGED PERSONS. IT IS INTENDED THAT CONCERNS PARTICIPATING IN THE 8(A) PROGRAM WILL ENHANCE THEIR OPPORTUNITIES TO ACHIEVE A COMPETITIVE AND PROFITABLE POSITION IN THE MARKETPLACE. IT IS NOT INTENDED THAT 8(A) CONTRACTS WILL SUPPORT A CONCERN INDEFINITELY BUT RATHER WILL SERVE AS AN ADJUNCT TO ASSIST IN ITS DEVELOPMENT. CONSEQUENTLY, PARTICIPATION IN THE 8(A) PROGRAM MUST BE IN ACCORDANCE WITH AN ACCEPTABLE BUSINESS PLAN PROJECTING THE BUSINESS DEVELOPMENTAL GOALS OF THE ELIGIBLE FIRM TOGETHER WITH THE AMOUNT AND DURATION OF 8(A) ASSISTANCE REQUIRED."

BASED ON THE RECORD, WE ARE UNABLE TO FIND ANY MERIT TO WALLACE'S CONTENTION THAT THE SBA IMPROPERLY REDUCED THE AMOUNT OF ITS ASSISTANCE IN ORDER TO REALLOCATE FUEL REQUIREMENTS AMONG ADDITIONAL 8(A) CONTRACTORS. WHILE THE COURTS HAVE RECOGNIZED THAT ONE WHO UNSUCCESSFULLY SEEKS A GOVERNMENT CONTRACT HAS A SUFFICIENT INTEREST IN THE AWARD OF THAT CONTRACT TO GIVE IT STANDING TO SUE, SEE SCANWELL LABORATORIES, INC. V. THOMAS, 424 F. 2D 859 (1970), WE KNOW OF NO AUTHORITY FOR THE PROPOSITION THAT THE NATURE OF THAT INTEREST, EVEN IN THE CASE OF AN INCUMBENT CONTRACTOR, RISES TO THE LEVEL OF A VESTED PROPERTY RIGHT. NONETHELESS, THE SBA REPORTS THAT IT ADVISED WALLACE NEARLY A MONTH BEFORE THE REALLOCATION DETERMINATION OF ITS INTENT TO OPEN THE 8(A) PROGRAM TO OTHER SMALL FUEL OIL COMPANIES IN THE NEW YORK AREA AND TO REDUCE THE AMOUNT OF ITS 8(A) SUPPORT OF THE PROTESTER. MOREOVER, WE UNDERSTAND THAT THE SBA HAS OBTAINED CONTRACTS FOR FUEL REQUIREMENTS IN ADDITION TO THE SOME 27 MILLION GALLONS REFERRED TO ABOVE AND CORRESPONDENCE FROM THE PROTESTER INDICATES THAT SBA PROPOSES TO AWARD IT A SUBSTANTIAL PORTION OF THOSE ADDITIONAL REQUIREMENTS, SUBJECT TO GRANT OF NECESSARY FEA EXCEPTIONS.

ACCORDINGLY, THE PROTEST IS DENIED.