B-205573, MAY 12, 1982, 61 COMP.GEN. 385

B-205573: May 12, 1982

Additional Materials:

Contact:

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

 

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

CONTRACTS - LABOR SURPLUS AREAS - EVALUATION PREFERENCE - ELIGIBILITY OF BIDDER - PLACE OF SUBSTANTIAL PERFORMANCE - RESPONSIBILITY MATTER PROTEST THAT AGENCY IMPROPERLY AWARDED CONTRACTS TO FIRM AS A LABOR SURPLUS AREA (LSA) CONCERN AND FAILED TO CONSIDER EVIDENCE THAT IT LACKED ABILITY TO MEET LSA CONCERN PERFORMANCE REQUIREMENTS IS SUSTAINED TO THE EXTENT THAT THE AGENCY HAD NOT PLACED THE BURDEN ON THE FIRM TO DEMONSTRATE AFFIRMATIVELY ITS ABILITY TO MEET THOSE REQUIREMENTS AS A MATTER OF RESPONSIBILITY. WHICH WERE PARTIALLY SET ASIDE FOR AWARD TO ONE OR MORE SMALL BUSINESS CONCERNS. THE FIRM IN FACT WILL NOT DO SO. IS A CONCERN WHICH. WILL PERFORM SUBSTANTIALLY IN GEOGRAPHICAL AREAS IDENTIFIED BY THE DEPARTMENT OF LABOR AS AREAS OF CONCENTRATED UNEMPLOYMENT OR UNDEREMPLOYMENT OR AREAS OF LABOR SURPLUS.

B-205573, MAY 12, 1982, 61 COMP.GEN. 385

CONTRACTS - LABOR SURPLUS AREAS - EVALUATION PREFERENCE - ELIGIBILITY OF BIDDER - PLACE OF SUBSTANTIAL PERFORMANCE - RESPONSIBILITY MATTER PROTEST THAT AGENCY IMPROPERLY AWARDED CONTRACTS TO FIRM AS A LABOR SURPLUS AREA (LSA) CONCERN AND FAILED TO CONSIDER EVIDENCE THAT IT LACKED ABILITY TO MEET LSA CONCERN PERFORMANCE REQUIREMENTS IS SUSTAINED TO THE EXTENT THAT THE AGENCY HAD NOT PLACED THE BURDEN ON THE FIRM TO DEMONSTRATE AFFIRMATIVELY ITS ABILITY TO MEET THOSE REQUIREMENTS AS A MATTER OF RESPONSIBILITY, BUT INSTEAD ASSUMED THE AGENCY HAD THE BURDEN OF SHOWING THE FIRM INTENDED TO EVADE THE REQUIREMENTS.

MATTER OF: LOU ANA FOODS, INC., MAY 12, 1982:

LOU ANA FOODS, INC. PROTESTS THAT THE COMMODITY CREDIT CORPORATION (CCC), DEPARTMENT OF AGRICULTURE, IMPROPERLY AWARDED THREE CONTRACTS TO CAL WESTERN PACKAGING CORPORATION TO SUPPLY THE CCC WITH REFINED SOYBEAN SALAD OIL. THE CCC PERIODICALLY INVITES OFFERS TO SELL THE CCC REFINED SOYBEAN SALAD OIL UNDER ANNOUNCEMENT PVSO-1, AS AMENDED. THE PURCHASES IN QUESTION OCCURRED UNDER INVITATION NOS. 58 THROUGH 60, WHICH WERE PARTIALLY SET ASIDE FOR AWARD TO ONE OR MORE SMALL BUSINESS CONCERNS, AND WHICH PROVIDED A PREFERENCE IN THE EVALUATION OF AN OFFER FROM A FIRM THAT AGREED TO PERFORM THE CONTRACT AS A LABOR SURPLUS AREA (LSA) CONCERN. LOU ANA ALLEGES THAT ALTHOUGH CAL WESTERN REPRESENTED IN ITS OFFERS THAT IT WOULD PERFORM AS AN LSA CONCERN, AND THUS RECEIVED THE BENEFIT OF THE PREFERENCE, THE FIRM IN FACT WILL NOT DO SO.

WE SUSTAIN THE PROTEST.

THE SOLICITATIONS ESTABLISHED TWO GROUPS OF PRIORITIES FOR THE PURPOSE OF NEGOTIATING THE SET-ASIDE PORTIONS OF THE ACQUISITIONS. GROUP 1, HAVING THE HIGHEST PRIORITY, INCLUDED SMALL BUSINESS CONCERNS WHICH AGREE TO PERFORM AS LSA CONCERNS, WHEREAS GROUP 2 INCLUDED NON LSA SMALL BUSINESS CONCERNS. AN LSA CONCERN, AS DEFINED BY THE SOLICITATIONS, IS A CONCERN WHICH, TOGETHER WITH ITS FIRST TIER SUBCONTRACTORS, WILL PERFORM SUBSTANTIALLY IN GEOGRAPHICAL AREAS IDENTIFIED BY THE DEPARTMENT OF LABOR AS AREAS OF CONCENTRATED UNEMPLOYMENT OR UNDEREMPLOYMENT OR AREAS OF LABOR SURPLUS. SUBSTANTIAL PERFORMANCE IN LSAS MEANS THAT THE COSTS INCURRED ON ACCOUNT OF MANUFACTURING, PRODUCTION OR APPROPRIATE SERVICES IN LSAS MUST EXCEED 50 PERCENT OF THE CONTRACT PRICE.

CAL WESTERN IS A PACKAGING FIRM WITH A PACKAGING PLANT IN COMPTON, CALIFORNIA, WHICH IS AN LSA. CAL WESTERN RECEIVED AWARDS UNDER GROUP 1 PRIORITY, HAVING REPRESENTED IN ITS OFFERS THAT IT WOULD SUBSTANTIALLY PERFORM THE CONTRACTS IN COMPTON. PRIOR TO AWARD IN EACH ACQUISITION, HOWEVER, LOU ANA FILED PROTESTS WITH THE CONTRACTING OFFICER ALLEGING THAT CAL WESTERN, BEING A PACKAGING FIRM, COULD NOT INCUR MORE THAN 50 PERCENT OF THE CONTRACT COSTS IN COMPTON. THE PROTESTER ALLEGED THAT TO PERFORM THE CONTRACTS CAL WESTERN PURCHASES SOYBEAN SALAD OIL IN NON LSAS FOR PACKAGING IN COMPTON, AND THAT THE PURCHASE PRICE OF THE SALAD OIL EXCEEDS 50 PERCENT OF THE CONTRACT PRICE. LOU ANA CONTENDED THAT CAL WESTERN THEREFORE SHOULD NOT BE DEEMED AN LSA CONCERN.

THE CONTRACTING OFFICER DENIED THE PROTESTS. HIS VIEW BASICALLY WAS THAT AN OFFEROR'S STATUS AS AN LSA CONCERN INVOLVES AN AGREEMENT TO DO SOMETHING IN THE FUTURE, AND THEREFORE IS NOT SUSCEPTIBLE TO CHALLENGE PRIOR TO AWARD ABSENT EVIDENCE OF AN INTENT TO EVADE OR IGNORE THE REQUIREMENTS TO PERFORM SUBSTANTIALLY IN LSAS. AT THE TIME OF LOU ANA'S INITIAL PROTESTS WITH THE AGENCY, THE CONTRACTING OFFICER CONSIDERED THAT HE LACKED SUCH EVIDENCE, AND THEREFORE DENIED THE PROTESTS. HE DID INITIATE AN AUDIT OF CAL WESTERN'S CONTRACTS, HOWEVER, TO VERIFY LOU ANA'S ALLEGATIONS. WHILE THE AUDIT VERIFIED THOSE ALLEGATIONS, THE AGENCY AGAIN INFORMED THE PROTESTER THAT ITS PROTESTS LACKED MERIT BECAUSE THE AUDIT DID NOT SHOW AN INTENT TO EVADE THE LSA CONCERN REQUIREMENTS IN ANY OF THE PARTICULAR PROCUREMENTS THEN IN ISSUE.

INITIALLY, THERE IS A QUESTION OF WHETHER THE PROTEST WAS TIMELY FILED. THE DEPARTMENT OF AGRICULTURE ARGUES THAT THE PROTEST IS UNTIMELY BECAUSE IT WAS FILED WITH THIS OFFICE MORE THAN 10 WORKING DAYS AFTER THE PROTESTER HAD RECEIVED INITIAL ADVERSE AGENCY ACTION ON THE PROTEST IT ORIGINALLY FILED WITH THE AGENCY. WHILE THE PROTEST MAY BE UNTIMELY, WE NONETHELESS WILL CONSIDER IT ON THE MERITS BECAUSE IT RAISES A SIGNIFICANT ISSUE IN TERMS OF DEFINING THE RESPECTIVE DUTIES OF AN OFFEROR AND THE CONTRACTING AGENCY TOWARD ESTABLISHING THE OFFEROR'S QUALIFICATIONS FOR AWARD AS AN LSA CONCERN. SEE 4 C.F.R. 21.2(C) (1981).

BY REPRESENTING IN ITS OFFER THAT IT WOULD SUBSTANTIALLY PERFORM THE CONTRACTS IN AN LSA, CAL WESTERN ESTABLISHED ITS COMMITMENT FOR PERFORMANCE AS AN LSA CONCERN. LOU ANA'S PROTEST AGAINST THE AWARDS TO CAL WESTERN ON THE BASIS THAT CAL WESTERN ALLEGEDLY LACKS THE ABILITY TO PERFORM AS AN LSA CONCERN ESSENTIALLY QUESTIONS THE CCC'S AFFIRMATIVE DETERMINATION OF CAL WESTERN'S RESPONSIBILITY. SEE SOUTH JERSEY CLOTHING CO.; CATANIA CLOTHING CORP., B-204531, B-204531.2, FEBRUARY 4, 1982, 82-1 CPD 88.

WE GENERALLY DO NOT REVIEW PROTESTS AGAINST AFFIRMATIVE RESPONSIBILITY DETERMINATIONS. HOWEVER, OUR CONCERN HERE IS THE CONTRACTING OFFICER'S APPARENT POSITION THAT HE WAS PRECLUDED FROM FINDING CAL WESTERN NONRESPONSIBLE FOR THE CONTRACTS IN ISSUE, DESPITE HIS OWN AGENCY REPORT THAT THE FIRM IN FACT DID NOT PERFORM AS IT REPRESENTED IT WOULD (I.E., AS AN LSA CONCERN) IN PRIOR PROCUREMENTS, SIMPLY BECAUSE HE COULD NOT SAY THAT THE FIRM INTENDED TO DO SO AGAIN. WE BELIEVE THAT THIS POSITION REFLECTS A MISUNDERSTANDING OF THE RELATIVE BURDENS IMPOSED ON AN OFFEROR AND THE AGENCY TO ESTABLISH THE OFFEROR'S RESPONSIBILITY.

THE FEDERAL PROCUREMENT REGULATIONS (FPR) PROVIDE THAT A PROSPECTIVE CONTRACTOR "MUST DEMONSTRATE AFFIRMATIVELY HIS RESPONSIBILITY AND WHEN NECESSARY, THAT OF HIS PROPOSED SUBCONTRACTORS," FPR SEC. 1-1.1202(C) (1964 ED.), AND THAT A DETERMINATION OF NONRESPONSIBILITY SHALL BE MADE BY THE CONTRACTING OFFICER IF THE INFORMATION OBTAINED DOES NOT INDICATE CLEARLY THAT THE PROSPECTIVE CONTRACTOR IS RESPONSIBLE. FPR SEC. 1- 1.1202(D). THE REGULATIONS THUS PLACE THE BURDEN ON AN OFFEROR TO DEMONSTRATE AFFIRMATIVELY ITS RESPONSIBILITY, NOT ON THE AGENCY TO DISPROVE IT; THERE IS NO PRESUMPTION THAT AN OFFEROR IS RESPONSIBLE.

RATHER THAN MAKING A NONRESPONSIBILITY DETERMINATION CONTINGENT ON EVIDENCE THAT THE PROSPECTIVE CONTRACTOR IN FACT DOES NOT INTEND TO MEET ITS OBLIGATIONS, THE REGULATIONS SET FORTH A NUMBER OF FACTORS FOR THE CONTRACTING OFFICER'S CONSIDERATION, INCLUDING THE CONTRACTOR'S RECORD OF PERFORMANCE AND RECORD OF INTEGRITY. FPR SEC. 1-1.1212 1(C)(D). THUS, WHILE IT MAY BE ALMOST IMPOSSIBLE FOR A CONTRACTING OFFICER TO CONCLUDE THAT A FIRM ACTUALLY INTENDS TO DO OTHER THAN THAT REFLECTED IN THE BID, THE REGULATIONS THEMSELVES APPEAR TO PERMIT AT LEAST THE INFERENCE, BASED ON THE FIRM'S PAST PERFORMANCE, THAT IT IS DOUBTFUL THAT THE FIRM WILL MEET ITS OBLIGATION.

MOREOVER, WHERE THE OFFEROR IS A SMALL BUSINESS, THE AGENCY'S NONRESPONSIBILITY DETERMINATION DOES NOT END THE MATTER, BECAUSE THE SMALL BUSINESS ADMINISTRATION (SBA) HAS CONCLUSIVE AUTHORITY TO DETERMINE ELEMENTS OF A SMALL BUSINESS CONCERN'S RESPONSIBILITY UNDER ITS CERTIFICATE OF COMPETENCY PROCEDURES. 15 U.S.C. 637(B)(7) (SUPP. III (1979). THEREFORE, IF A SMALL BUSINESS CONCERN'S OFFER IS TO BE REJECTED BECAUSE THE CONTRACTING OFFICER HAS DETERMINED THE CONCERN TO BE NONRESPONSIBLE, THE MATTER MUST BE REFERRED TO THE SBA. FPR SEC. 1 1.708- 2(A)(2).

IN VIEW OF THE ABOVE, WE BELIEVE THAT WHERE A CONTRACTING OFFICER HAS REASON TO DOUBT A SMALL BUSINESS CONCERN'S ABILITY TO PERFORM AS AN LSA CONCERN, HE SHOULD REFER THE MATTER TO SBA FOR A CERTIFICATE OF COMPETENCY DETERMINATION UNLESS THE OFFEROR WILL RECEIVE AN IDENTICAL CONTRACT (EXCEPT FOR THE LSA TERMS) AS A NON-LSA CONCERN. WE SUGGEST THAT THIS WOULD HAVE BEEN THE PROPER APPROACH IN THIS CASE. NONETHELESS, SINCE CAL WESTERN'S CONTRACTS HAVE BEEN COMPLETED, THE MATTER IS ACADEMIC FOR PURPOSES OF THIS PROTEST. (IN THIS RESPECT, THE RECORD DOES NOT INDICATE WHETHER THE FIRM IN FACT PERFORMED AS AN LSA CONCERN. OF COURSE, HAD THE CONTRACTING OFFICER, DURING PERFORMANCE, LEARNED THAT THE FIRM WAS NOT PERFORMING AS AN LSA CONCERN AS IT COMMITTED ITSELF TO DO, THE CONTRACTS COULD HAVE BEEN SUBJECT TO DEFAULT. SEE CHEM-TECH RUBBER, INC., 60 COMP.GEN. 694 (1981), 81-2 CPD 232. FOR FUTURE ACQUISITIONS, HOWEVER, WE ARE RECOMMENDING THAT THE SECRETARY OF AGRICULTURE TAKE APPROPRIATE STEPS TO HAVE AN OFFEROR'S ABILITY TO PERFORM AS AN LSA CONCERN PROPERLY TREATED AS A RESPONSIBILITY MATTER.

THE PROTEST IS SUSTAINED.