B-204230.2,L/M, AUG 24, 1982

B-204230.2,L/M: Aug 24, 1982

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THIS WORK IS PART OF INTERIOR'S SALT-GILA AQUEDUCT PROJECT IN ARIZONA. CONTAINED INFORMATION THAT THE COGNIZANT SBA ASSISTANT REGIONAL ADMINISTRATOR WAS IMPLICATED IN AN ALLEGED KICK-BACK OPERATION THEN BEING INVESTIGATED BY SBA'S INSPECTOR GENERAL. THAT INVESTIGATION WAS DELAYED PENDING THE COMPLETION OF SBA'S INVESTIGATIONS. WE BELIEVE THE RECORD SHOWS THAT CERTAIN ACTIONS INIMICAL TO POPE'S INTEREST WERE TAKEN. OUR AUDITORS' FINDINGS CENTERED ON THE ACTIONS OF THE SBA ASSISTANT DISTRICT DIRECTOR FOR MINORITY SMALL BUSINESS AND CAPITAL OWNERSHIP DEVELOPMENT IN SAN FRANCISCO WHO WAS INSTRUMENTAL IN REJECTING POPE. WHICH BEING VALUED AT 11 TO 15 MILLION DOLLARS WAS ONE OF THE LARGEST PROJECTS EVER IN THAT PARTICULAR SBA REGION.

B-204230.2,L/M, AUG 24, 1982

PRECIS-UNAVAILABLE

JAMES C. SANDERS, SMALL BUSINESS ADMINISTRATION:

J.R.POPE, INC. REQUESTED RECONSIDERATION OF OUR DECISION B-204230, AUGUST 10, 1981, 81-2 CPD 114, WHICH DISMISSED ITS PROTEST OF THE SMALL BUSINESS ADMINISTRATION'S (SBA) SELECTION OF ANOTHER SECTION 8(A) CONCERN, EL CAMINO, INC., TO CONSTRUCT AN AQUEDUCT SECTION FOR THE DEPARTMENT OF INTERIOR. THIS WORK IS PART OF INTERIOR'S SALT-GILA AQUEDUCT PROJECT IN ARIZONA. WE HAD DISMISSED THE PROTEST BECAUSE POPE FAILED TO SUBMIT PRIMA FACIE EVIDENCE OF FRAUD OR BAD FAITH BY GOVERNMENT OFFICIALS, OR THAT SBA DID NOT FOLLOW ITS OWN REGULATIONS IN REFUSING TO SELECT POPE.

POPE'S REQUEST FOR RECONSIDERATION, HOWEVER, CONTAINED INFORMATION THAT THE COGNIZANT SBA ASSISTANT REGIONAL ADMINISTRATOR WAS IMPLICATED IN AN ALLEGED KICK-BACK OPERATION THEN BEING INVESTIGATED BY SBA'S INSPECTOR GENERAL.

BECAUSE WE BELIEVED POPE'S REQUEST FOR RECONSIDERATION MADE A PRIMA FACIE SHOWING OF FRAUD OR BAD FAITH, WE REQUESTED SBA TO SUBMIT A REPORT ON THE MATTER, AND ASKED OUR AUDITORS TO INITIATE THEIR OWN INVESTIGATION. THAT INVESTIGATION WAS DELAYED PENDING THE COMPLETION OF SBA'S INVESTIGATIONS. FN1

BASED ON THE RESULTS OF OUR AUDITORS' INVESTIGATION AND INFORMATION CONTAINED IN THE SBA INSPECTOR GENERAL'S REPORTS, WE BELIEVE THE RECORD SHOWS THAT CERTAIN ACTIONS INIMICAL TO POPE'S INTEREST WERE TAKEN.

OUR AUDITORS' FINDINGS CENTERED ON THE ACTIONS OF THE SBA ASSISTANT DISTRICT DIRECTOR FOR MINORITY SMALL BUSINESS AND CAPITAL OWNERSHIP DEVELOPMENT IN SAN FRANCISCO WHO WAS INSTRUMENTAL IN REJECTING POPE, AND WHO ALSO SELECTED EL CAMINO AS AN ALTERNATIVE. THE RECORD INDICATES THAT THE ASSISTANT DIRECTOR BELIEVED THE PROCUREMENT, WHICH BEING VALUED AT 11 TO 15 MILLION DOLLARS WAS ONE OF THE LARGEST PROJECTS EVER IN THAT PARTICULAR SBA REGION, WAS TOO LARGE FOR THE 8(A) PROGRAM. HE ESPECIALLY OPPOSED THE SELECTION OF POPE BECAUSE POPE HAD BEEN IN THE 8(A) PROGRAM FOR TEN YEARS WITH NO OR LITTLE APPARENT PROGRESS, AND BECAUSE HE HAD SERIOUS DOUBTS ABOUT POPE'S FINANCIAL CONDITION. HE TOLD SBA'S INSPECTOR GENERAL THAT BECAUSE HE DID NOT WANT POPE TO GET THE CONTRACT, HE SELECTED EL CAMINO DESPITE HAVING RESERVATIONS ABOUT EL CAMINO'S ELIGIBILITY FOR THE 8(A) PROGRAM, AND ADVISED POPE TO "GO POLITICAL" IF IT WANTED TO OBTAIN THE CONTRACT. IN ADDITION, HE UNILATERALLY NOMINATED EL CAMINO FOR THE CONTRACT WITHOUT CONVENING THE CUSTOMARY SELECTION COMMITTEE.

RESPONDING TO THE INSPECTOR GENERAL'S REPORT OF THESE ACTIONS, THE OFFICE OF GOVERNMENT ETHICS STATED THAT THE ASSISTANT DIRECTOR'S ACTIONS APPEARED TO VIOLATE EXECUTIVE ORDER 11222, 18 U.S.C. SEC. 201N (SUPP. III 1979), AND IMPLEMENTING REGULATIONS PERTAINING TO STANDARDS OF CONDUCT. THE EXECUTIVE ORDER PROVIDES, IN APPROPRIATE PART, THAT FEDERAL EMPLOYEES SHOULD AVOID ANY ACTION WHICH MIGHT CREATE THE APPEARANCE OF GIVING PREFERENTIAL TREATMENT TO ANY PERSON OR LOSING COMPLETE INDEPENDENCE OR IMPARTIALITY. IN THIS RESPECT, WE RECOGNIZE THAT THE ENFORCEMENT OF THE STANDARDS OF CONDUCT IS THE RESPONSIBILITY OF EACH AGENCY, NOT THIS OFFICE. SEE DEVELOPMENT ASSOCIATES, INC., 56 COMP.GEN. 580 (1977), 77-1 CPD 310. MOREOVER, A VIOLATION OF THE STANDARDS OF CONDUCT WHICH MERELY CREATES AN APPEARANCE OF IMPARTIALITY CLEARLY DOES NOT ESTABLISH BAD FAITH.

IN ADDITION TO THE ACTIONS ADDRESSED BY SBA'S INSPECTOR GENERAL AND THE OFFICE OF GOVERNMENT ETHICS, HOWEVER, OUR AUDITORS LEARNED THAT THE ASSISTANT DIRECTOR ALSO SENT INFORMATION TO SBA'S CENTRAL OFFICE CONCERNING POPE'S EMPLOYEES, EQUIPMENT AND FINANCES WHICH WAS NOT VERIFIED AND APPARENTLY WAS INCORRECT. THE CENTRAL OFFICE SUBSEQUENTLY REVIEWED THE DECISION TO REJECT POPE AND ULTIMATELY CONCURRED WITH IT. APPARENTLY THE CENTRAL OFFICE BASED ITS CONCURRENCE IN LARGE PART ON THE INFORMATION PROVIDED BY THE ASSISTANT DIRECTOR.

WE BELIEVE THE ASSISTANT DIRECTOR WAS CLEARLY DETERMINED TO ELIMINATE POPE FROM CONSIDERATION FOR THE INTERIOR PROJECT WITHOUT CONCERN FOR SBA'S CUSTOMARY PROCEDURES, EVEN GOING SO FAR AS TO NOMINATE A SUBSTITUTE FIRM FOR THE AWARD THAT HE CONSIDERED INELIGIBLE FOR THE 8(A) PROGRAM. WE ARE ALSO CONCERNED OVER HIS SUBMITTAL OF DAMAGING INFORMATION TO THE SBA CENTRAL OFFICE WHICH HE DID NOT VERIFY. THE ASSISTANT DIRECTOR'S ACTIONS PREJUDICED POPE. WE CONCLUDE, THEN, THAT NOTWITHSTANDING THE ASSISTANT DIRECTOR'S REASONS FOR DECIDING TO ELIMINATE POPE, HIS ACTIONS WERE INAPPROPRIATE.

DURING THE INSPECTOR GENERAL'S INVESTIGATION BUT PRIOR TO THE ISSUANCE OF ANY REPORTS, INTERIOR WITHDREW THE CONTRACT FROM THE 8(A) PROGRAM. NEVERTHELESS, IF INTERIOR AND SBA AGREE IN THE FUTURE TO SET ASIDE THIS PROCUREMENT FOR AN 8(A) CONCERN, WE RECOMMEND THAT THE SBA REVIEW ALL MATERIAL FACTS TO DETERMINE IF POPE SHOULD BE CONSIDERED FOR THE CONTRACT.

PLEASE ADVISE US OF THE ACTION TAKEN ON THIS MATTER.

FN1 THE INSPECTOR GENERAL, IN ADDITION TO INVESTIGATING THE ALLEGED KICK- BACK OPERATION, ALSO INVESTIGATED ALLEGATIONS THAT EL CAMINO WAS NOT ELIGIBLE FOR THE SECTION 8(A) PROGRAM AND THAT SBA ADMINISTRATOR MICHAEL CARDENAS DIRECTED THE SELECTION OF EL CAMINO DESPITE A CONFLICT OF INTEREST. THE INSPECTOR GENERAL FOUND THAT EL CAMINO DID NOT MEET THE ELIGIBILITY REQUIREMENTS FOR AN 8(A) CONCERN, BUT DID NOT FIND THAT ANY SBA OFFICIAL, INCLUDING MR. CARDENAS, ACTED FRAUDENTLY OR IN BAD FAITH.