B-228294, Dec 24, 1987, 67 Comp.Gen. 154

B-228294, Dec 24, 1987, 67 Comp.Gen. 154

Procurement - Competitive Negotiation - Contract Awards - Government Delays - Justification Procurement - Socio-Economic Policies - Small businesses - Corporate Entities - Modification - Effects DIGEST: Where firm's proposal under Small Business Innovation Research program initially is found acceptable for award, but firm subsequently undergoes a restructuring, the agency has a reasonable basis for reevaluating the firm's technical capability and financial responsibility to perform the project originally proposed; fact that reevaluation delays award process to end of fiscal year, and funds are reallocated so that award cannot be made to the firm, does not evidence improper action on agency's part.

Xemet, Inc.:

Xemet, Inc., protests the Department of the Navy's failure to award it funds for an unsolicited development project the firm proposed under the Department of Defense (DOD) Small Business Innovation Research (SBIR) program. According to Xemet, its proposal, submitted under the general guidelines of SBIR program solicitation No. 87.1, would have been funded if the Navy had conducted its evaluation properly and in a timely manner.

We deny the protest.

The DOD's SBIR program is conducted pursuant to the Small Business Innovation Development Act, 15 U.S.C. Sec. 638 (Supp. III 1985), which requires certain federal agencies to reserve a portion of their research and development funds for award to small businesses. Two types of awards are made: under phase 1 of the program, small businesses are invited to submit proposals to conduct research on one or more topics specified in the DOD solicitation; under phase 2, firms that have received phase 1 awards may, on their own initiative, submit proposals for further development work on the topic.

Xemet's proposal was for phase 2 development of a porous nose component for the Naval Underwater Systems Center (NUSC) at New London, Connecticut. Consistent with the manner in which the SBIR program operates, the proposal was submitted, not in response to a specific request for proposals issued by the Navy, but rather under the general guidelines provided in the SBIR program solicitation. NUSC evaluated Xemet's proposal for technical merit and on June 5, 1987, recommended to the sponsor, the Naval Sea Systems Command, that the firm be awarded a phase 2 contract. On June 17, the sponsor forwarded the $499,192 needed to fund the project; the expiration date for the funding was the close of the fiscal year, September 30.

In the course of reviewing the procurement request prior to award, the contracting officer became aware of letters from Xemet, dated June 4 and 12, notifying NUSC that significant changes had taken place within the company, specifically, the replacement of the principal investigator and the departure of two of the three key personnel listed in the firm's original proposal. Xemet proposed no plan for replacing the people who had departed, but merely stated that the firm would identify their replacements after it received the award. At the same time, Xemet did not propose changes in either the number of labor hours or the total cost for the proposed project.

Because the contracting officer believed all of these factors raised questions concerning the restructured firm's technical capability and cost of performing the project as originally proposed, on August 28 she made inquiries to the Defense Contract Administration Service Management Area (DCASMA), Nuys, California, regarding Xemet's ability to perform. DCASMA lacked current information on Xemet and, thus, recommended that the contracting officer have a financial preaward survey conducted. The contracting officer contacted the Defense Contract Audit Agency on August 31, and found that a January 1987 audit of Xemet's facility showed Xemet lacked an auditable accounting system. Based on this information, the contracting officer determined that a current preaward survey was required, and on September 1 asked DCASMA to perform one. On September 22, DCASMA advised that it would submit a negative report, recommending against award based on inadequate financial resources. Subsequently, the sponsor requested that the funds be returned before the end of the fiscal year so that they could be used to fund another project.

Xemet argues that the Navy improperly delayed undertaking its review of Xemet's ability to perform so that there was no time for negotiations and a Xemet response to the agency's concerns. In essence, the firm argues that but for the Navy's wrongful delay in evaluating its proposal it would have received an award. We find nothing objectionable in the Navy's actions. In light of the significant changes that had occurred in the proposed personnel since Xemet submitted its proposal, the Navy's decision to reevaluate Xemet for award was entirely prudent and reasonable. Further, we see no indication of any undue delay by the Navy in reexamining Xemet. Although Xemet submitted its proposal in November 1986, the funds for the award were not available until June 17, by which time the contracting officer had learned of the Xemet reorganization and resultant significant change in its proposal. Moreover, the SBIR program solicitation does not require that awards be made within any specific timeframe and, indeed, clearly reserves to the agency the right to make no award. Finally, the solicitation specifically provides that the agency may require the proposer to submit organizational, financial, and other information prior to award to confirm the proposer's responsibility. This is precisely what the Navy did here, and doing so was not improper merely because the concomitant delay left insufficient time for Xemet to respond to the Navy's concerns so that the award could be made.

Xemet alleges that the Navy's reevaluation of Xemet's suitability for award violated several provisions of the Federal Acquisition Regulation (FAR). This allegation is without merit. Xemet asserts, for example, that the Navy violated FAR, 48 C.F.R. Sec. 32.108 (1986), because "Xemet has not been asked for a cash flow statement." However, the provision cited, entitled "Financial Consultation," merely states that a contracting officer should avail himself of experienced contract financing personnel when questions arise concerning a firm's financial capability; this is precisely what the Navy did here. This and the other provisions cited by Xemet (in FAR parts 9 and 32), moreover, merely provide guidance for the agency and do not establish requirements that confer any rights on offerors.

Finally, Xemet argues that the Navy's decision not to make award to Xemet should have been referred to the Small Business Administration (SBA) for a conclusive determination of the firm's responsibility under the certificate of competency program. We disagree. Such a referral is required only where a small business firm has been found not to be a responsible prospective contractor. 15 U.S.C. Sec. 637 (b)(7). Here, although the preaward survey recommended against award based on inadequate financial resources, the contracting officer never adopted this recommendation; before the contracting officer made a final determination regarding Xemet's capabilities to perform, the sponsor, exercising its broad discretion, withdrew the funds earmarked to fund the proposed award to Xemet and reallocated these monies for another project. Xemet, at all times, remained eligible for award but due to the expiration of fiscal year 1987 funds, its proposal no longer could be considered for award. Xemet, however, may resubmit its proposal for consideration during fiscal year 1988.

We conclude that there is no showing that the Navy acted unreasonably, in bad faith, or otherwise improperly. See Twentyfirst Century Technological Innovations Research and Development Enterprising, B-225179.2, Apr. 1, 1987, 87-1 CPD Par. 368.

The protest is denied.