B-84343, MAY 20, 1949, 28 COMP. GEN. 662

B-84343, MAY 20, 1949, 28 COMP. GEN. 662

CONTRACTS - AWARDS - TO OTHER THAN LOW BIDDER - ARMED SERVICES PROCUREMENT ACT OF 1947 THE PROVISION IN SECTION 2 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947, REQUIRING THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR SUPPLIES AND SERVICES FOR THE GOVERNMENT BE PLACED WITH SMALL BUSINESS CONCERNS WHEN CONSIDERED IN THE LIGHT OF THE DECLARED LEGISLATIVE INTENT OF THE ACT AND THE REQUIREMENT IN SECTION 3 (B) THEREOF THAT AWARD BE MADE TO THE RESPONSIBLE BIDDER WHOSE BID WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED, DOES NOT AUTHORIZE THE AWARDING OF CONTRACTS TO OTHER THAN THE LOW BIDDER, IN THOSE CASES WHERE ADVERTISING IS REQUIRED, SOLELY ON THE BASIS THAT A BIDDER QUALIFIES AS A SMALL BUSINESS CONCERN.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE NAVY, MAY 20, 1949:

THERE HAS COME TO MY ATTENTION CONTRACT N 140-62236S-9106B, WITH THE E. J. GIVREN SHOE COMPANY, ROCKLAND, MASSACHUSETTS, AND CONTRACT N 140 62236S -9107B, WITH THE HUBBARD SHOE COMPANY, ROCHESTER, NEW HAMPSHIRE, COVERING THE PROCUREMENT BY YOUR DEPARTMENT OF CERTAIN QUANTITIES OF SHOES. I AM CONCERNED THAT THE RECORD SHOWS THAT AWARD OF SUCH CONTRACTS WAS MADE TO THE SAID CONCERNS NOTWITHSTANDING THEY WERE NOT THE LOW BIDDERS FOR FURNISHING SUCH SUPPLIES TO THE GOVERNMENT.

A STATEMENT RELATIVE TO THE BIDS RECEIVED AND THE BASIS FOR THE AWARDS AS MADE IS ATTACHED TO EACH CONTRACT AND IS IDENTICALLY AS FOLLOWS:

THIS AWARD HAS BEEN MADE UNDER A TOTAL ADVERTISED PROCUREMENT FOR 700,000 PAIRS OF BLACK CALFSKIN LOW SHOES HAVING A TOTAL APPROXIMATE COST OF $3,850,000. BIDS WERE RECEIVED FROM 23 BIDDERS, THREE OF WHOM, INTERNATIONAL SHOE COMPANY, GENERAL SHOE COMPANY, AND J. F. MCELWAIN CO., WERE LOW BIDDERS IN THE AGGREGATE FOR THE TOTAL PROCUREMENT. AN ANALYSIS OF THESE AND OTHER LOW BIDS RECEIVED IS SET FORTH BELOW. SECTION 2 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947 ( PUBLIC LAW 413, 80TH CONGRESS), PURSUANT TO WHICH ACT THIS PROCUREMENT WAS MADE, SETS FORTH THE FOLLOWING EXPRESSION OF CONGRESSIONAL INTENT: "IT IS THE DECLARED POLICY OF THE CONGRESS THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR SUPPLIES AND SERVICES FOR THE GOVERNMENT SHALL BE PLACED WITH SMALL BUSINESS CONCERNS.' PURSUANT TO THIS EXPRESSION OF POLICY, IT WAS DECIDED BY THE UNDER SECRETARY OF THE NAVY, BY WHOM THE BIDS WERE EVALUATED, THAT A FAIR PROPORTION OF THE TOTAL PROCUREMENT SHOULD BE AWARDED TO MANUFACTURERS QUALIFYING AS SMALL BUSINESS CONCERNS (NAMELY, AS PROVIDED IN PARAGRAPH 1-302.3 OF THE ARMED SERVICES PROCUREMENT REGULATION "ANY CONCERN WHICH EMPLOYS FEWER THAN 500 PERSONS" ). IN CONFORMITY WITH THE AFOREMENTIONED EXPRESSION OF CONGRESSIONAL INTENT, IT WAS DECIDED THAT THE STATUS OF A BIDDER AS A SMALL BUSINESS CONCERN WAS ONE OF THE FACTORS TO BE CONSIDERED UNDER SECTION 3 (B) OF THE ARMED SERVICES PROCUREMENT ACT AND THAT THEREFOR THE INSTANT AWARD WOULD BE "THE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.'

AWARDS BEING MADE ON THE ENTIRE PROCUREMENT ARE AS FOLLOWS:

DELIVERIES TO BROOKLYN E. J. GIVREN SHOE CO., ROCKLAND, MASS.:

30,000 PR. (1) $5.5944 -------------------------------$167,832.00

30,000 PR. (1) $5.6243 ------------------------------- 168,729.00 HUBBARD SHOE CO., EAST MANCHESTER, N.H.: 20,000

PR. (1) $5.6343 ---------------------------------------- - 112,686.00 INTERNATIONAL SHOE CO., LIKESTON, NASHUA, N.H.:

100,000 PR. $5.355 ----------------------------------- 535,500.00

120,000 PR. $5.48 ------------------------------------ 657,600.00 J. F. MCELWAIN CO., DOVER, N.H.: 100,000 PR. $5.47 -- 547,000.00 GENERAL SHOE CO., TENNESSEE AND GEORGIA: 90,000 PR.

$5.53 --------------------------------------------------- 497,700.00

2,687,047.00

DELIVERIES TO OAKLAND E. J. GIVREN SHOE CO., ROCKLAND, MASS.: 30,000

PR. (1) $5.7742 ---------------------------------------- 173,226.00 INTERNATIONAL SHOE CO., LIKESTON, NASHUA, N.H.:

70,000 PR. $5.45 ------------------------------------- 387,800.00

110,000 PR. $5.415 ----------------------------------- 595,650.00

1,156,676.00

PRICE REFLECTS DISCOUNT OF 1/10 OF 1 PERCENT 10 DAYS.

BY DIRECTION OF THE UNDER SECRETARY OF THE NAVY, AWARDS ARE BEING MADE TO THE E. J. GIVREN SHOE CO. AND TO THE HUBBARD SHOE CO. (THE LOWEST BIDDERS OF THE SMALL BUSINESS CONCERNS) OF QUANTITIES AGGREGATING APPROXIMATELY 1/6 OF THE TOTAL PROCUREMENT UPON THE GROUND THAT THAT REPRESENTED A ,FAIR PROPORTION OF THE TOTAL PURCHASE" TO BE PLACED WITH SMALL BUSINESS EVEN THOUGH THIS ACTION RESULTS IN THE PURCHASE OF 110,000 PAIRS OF SHOES AT PRICES SOME CENTS HIGHER PER PAIR THAN THOSE SUBMITTED BY OTHER BIDDERS NOT SO QUALIFIED AS SMALL BUSINESS CONCERNS.

WHILE, AS INDICATED IN THE ABOVE STATEMENT, THE ARMED SERVICES PROCUREMENT ACT OF 1947, PUBLIC LAW 413, 80TH CONGRESS, PROVIDES, UNDER SECTION 2 (B), 62 STAT. 21, THAT " IT IS THE DECLARED POLICY OF THE CONGRESS THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR SUPPLIES AND SERVICES FOR THE GOVERNMENT SHALL BE PLACED WITH SMALL BUSINESS CONCERNS," SUCH PROVISION, STANDING ALONE, DOES NOT AUTHORIZE THE PURCHASE FROM, OR AWARD OF CONTRACTS TO, CONCERNS QUALIFYING AS SMALL BUSINESS CONCERNS IN COMPLETE DISREGARD OF PROCUREMENT FROM OTHER SOURCES AT LOWER PRICES. NOR DOES THE ACT OTHERWISE AUTHORIZE THE PROCUREMENT OF SUPPLIES OF THE NATURE HERE INVOLVED WITHOUT ADVERTISING OR FROM OTHER THAN THE LOW BIDDER WITH CERTAIN EXCEPTIONS NOT HERE MATERIAL. TO THE CONTRARY, THE ACT EXPRESSLY PROVIDES, UNDER SECTION 2 (C) THEREOF, 62 STAT. 21, THAT " ALL PURCHASES AND CONTRACTS FOR SUPPLIES AND SERVICES SHALL BE MADE BY ADVERTISING * * * EXCEPT * * *.' THEN FOLLOW CERTAIN SPECIFIC EXCEPTIONS WHICH ARE NOT MATERIAL HERE. FURTHERMORE IT IS PROVIDED UNDER SECTION 3 (B), 62 STAT. 23, THAT "* * * AWARD SHALL BE MADE * * * TO THAT RESPONSIBLE BIDDER WHOSE BID, CONFORMING TO THE INVITATION FOR BIDS, WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED: * * *.' ( ITALICS SUPPLIED.) WHILE THE TERM "OTHER FACTORS" AS THUS USED IS NOT EXPRESSLY DEFINED IT SEEMS CLEAR THAT SUCH TERM WAS NOT INTENDED TO BE GIVEN OTHER THAN ITS CUSTOMARY OR USUAL MEANING, I.E., IT COMPREHENDS SUCH FACTORS AS AN EVALUATION OF THE BIDDER'S EXPERIENCE, REPUTATION, FINANCIAL STABILITY, AND ABILITY TO PERFORM THE CONTRACT. SUCH VIEW IS SUPPORTED BY STATEMENTS CONTAINED IN AN ANALYSIS OF THE PROVISIONS OF THE BILL SUBMITTED IN JUSTIFICATION THEREOF WHEN THE BILL WAS ORIGINALLY PROPOSED. THEREIN IT WAS STATED---

BY SECTION 3 (B) THE PRINCIPLES THAT CONTRACTS SHALL BE AWARDED TO THE LOWEST RESPONSIBLE BIDDER AND THAT THE GOVERNMENT MAY REJECT ALL BIDS WHEN SUCH ACTION IS DEEMED ADVISABLE ARE REITERATED. THE QUESTION AS TO WHETHER A PARTICULAR BIDDER IS A "RESPONSIBLE BIDDER" IS ONE OF SOUND BUSINESS JUDGMENT, DEPENDING UPON AN EVALUATION OF THE BIDDER'S EXPERIENCE, REPUTATION, FINANCIAL RESOURCES AND OTHER FACTORS. THE AGENCY CONCERNED WITH THE PROCUREMENT OF GOODS OF THE TYPE DEALT IN BY THE BIDDER IS NATURALLY BEST QUALIFIED TO MAKE THE EVALUATION. FOR SUCH REASON THE INSTANT BILL PROPOSES TO VEST THE HEADS OF THE AGENCIES WITH THE POWER TO MAKE A BINDING DETERMINATION THAT A PARTICULAR BIDDER DOES NOT POSSESS THE QUALITIES NECESSARY TO QUALIFY HIM AS A RESPONSIBLE BIDDER. * * * ( ITALICS SUPPLIED.)

IN THE HEARINGS BEFORE THE SUBCOMMITTEE OF THE HOUSE OF REPRESENTATIVES ON THE BILL H.R. 1366, WHICH, UPON ENACTMENT, BECAME THE ARMED SERVICES PROCUREMENT ACT OF 1947 (PAGE 471, HEARINGS NO. 51, FEBRUARY 4, 1947), THE GENERAL PROVISIONS OF THE BILL WERE ANALYZED AS FOLLOWS:

THIS SECTION PROVIDES THAT ALL WAR AND NAVY PURCHASES AND CONTRACTS OF EVERY CHARACTER, TYPE AND DESCRIPTION OF SUPPLIES OR SERVICES SHALL BE MADE UNDER THE ACT. IT FURTHER PROVIDES THAT THE DEPARTMENTS SHALL MAKE ALL SUCH PURCHASES AND CONTRACTS BY ADVERTISING EXCEPT THAT CONTRACTS MAY BE NEGOTIATED WITHOUT ADVERTISING IF THEY COME WITHIN CERTAIN SPECIFIED CATEGORIES. ADVERTISING CONTINUES TO BE THE RULE, NEGOTIATION THE PERMISSIBLE EXCEPTION.

IN DISCUSSING THE PROVISIONS OF SAID BILL, IT WAS STATED:

MR. BATES. THE THOUGHT ENTERED MY MIND, AND THE REASON FOR MY INQUIRY WAS THAT WHILE THE PROVISIONS OF SECTION 1 STATE THAT PURCHASES SHALL BE MADE BY ADVERTISING, CAN IT BE CONSTRUED THAT THE LOW BID MUST BE ACCEPTED?

MR. VINSON. THAT IS RIGHT. ( ITALICS SUPPLIED.) WITH SPECIFIC REFERENCE TO SECTION 2 (B) OF THE ACT, IT IS STATED AT PAGE 575 OF SAID HEARINGS:

MR. HILL. SECTION 2 STATES THAT IT IS THE POLICY THAT SMALL BUSINESS SHALL HAVE AN OPPORTUNITY TO GET BUSINESS, AND IN THE PROMOTION OF THAT, IT IS SPECIFIED THAT YOU SHALL BREAK DOWN LARGE QUANTITIES INTO SMALLER QUANTITIES HAVING IN MIND THAT THE SMALL COMPANY MAY NOT BE IN THE POSITION TO TAKE A CONTRACT FOR 10,000 UNITS BUT MIGHT BE ABLE TO TAKE A CONTRACT FOR 2,000 UNITS.

MR. BATES. WHAT ABOUT COST AND QUALITY?

MR. HILL. THOSE NECESSARILY HAVE TO BE TAKEN INTO ACCOUNT.

MR. BATES. WHAT IS THE MEANING OF "MANIFEST DISADVANTAGE TO THE GOVERNMENT? " WHAT IS YOUR INTERPRETATION OF "MANIFEST" IN THAT REGARD?

MR. HILL. IT MAY BE REDUNDANT. I THINK IT IS INTENDED TO OPERATE ONLY IN THE CASE WHERE IT SEEMS REASONABLY CLEAR THAT IF TO BREAK THE THING DOWN IN SMALL LOTS, IT RESULTS IN DISADVANTAGE TO THE GOVERNMENT BY REASON OF HIGHER PRICES, PRESUMABLY.

MR. HILL. * * * SECTION 2 IS ONLY INTENDED TO SAY WHERE THE GOVERNMENT CAN WITHOUT DISADVANTAGE TO ITSELF BREAK THE OVERALL QUANTITY DOWN INTO SMALLER QUANTITIES, IT SHALL DO SO.

MR. BATES. HAVING IN MIND PRICE AND QUANTITY?

MR. HILL. THAT IS RIGHT. ( ITALICS SUPPLIED.)

WHILE IT IS NOTED THAT SECTION 2 (B) OF THE BILL WAS AMENDED IN THE SENATE PRIOR TO THE ENACTMENT THEREOF, IT DOES NOT APPEAR THAT ANY SUBSTANTIVE CHANGE IN THE EFFECT THEREOF WAS SOUGHT TO BE ACCOMPLISHED OR ACTUALLY WAS ACCOMPLISHED. SEE, IN THIS CONNECTION, SENATE REPORT NO. 571, JULY 16, 1947, RELATIVE TO THE AMENDMENTS TO THE BILL AS PROPOSED BY THE HOUSE.

IT SEEMS CLEAR FROM THE ABOVE THAT THE PURPOSES SOUGHT TO BE ACCOMPLISHED BY THE PROVISION IN QUESTION MAY BE ACCOMPLISHED TO A CONSIDERABLE EXTENT BY AFFORDING SMALL BUSINESS CONCERNS THE OPPORTUNITY OF BIDDING ON AND SECURING GOVERNMENT BUSINESS BY AUTHORIZING THE ISSUANCE OF INVITATIONS TO BID ON A SMALL LOT BASIS WHERE FEASIBLE, AND/OR THE DISTRIBUTION OF AWARDS OF GOVERNMENT CONTRACTS TO PERMIT THE AWARD OF A CONTRACT TO SMALL BUSINESS CONCERNS OFFERING TO FURNISH LESS THAN THE TOTAL QUANTITY REQUIRED TO MEET THE NEEDS OF THE GOVERNMENT. ALSO, THE PURPOSES MAY BE ACCOMPLISHED TO SOME EXTENT BY THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS IN MANY CASES WHERE ADVERTISING IS NOT REQUIRED. HOWEVER, IT SEEMS EQUALLY CLEAR FROM THE LANGUAGE OF THE ACT, AS WELL AS FROM ITS LEGISLATIVE HISTORY, THAT THE SAID PROVISION DOES NOT AUTHORIZE AND WAS NOT INTENDED TO AUTHORIZE THE AWARDING OF CONTRACTS TO OTHER THAN THE LOW BIDDER, IN THOSE CASES WHERE ADVERTISING IS REQUIRED, SOLELY ON THE BASIS THAT A BIDDER QUALIFIES AS A SMALL BUSINESS CONCERN.

WITH RESPECT TO THE MATTER GENERALLY IT MAY BE STATED THAT THIS OFFICE IS IN RECEIPT OF A COPY OF AN " ANALYSIS OF PROCUREMENT CONTRACTS AWARDED BY THE MILITARY DEPARTMENTS FROM 18 MAY THROUGH 30 JUNE 1948," PREPARED BY THE MUNITION BOARD, WHICH DISCLOSES THAT DURING SAID INITIAL PERIOD, IN FURTHERANCE OF THE CITED POLICY OF THE CONGRESS WITH RESPECT TO THE AWARD OF CONTRACTS WITH SMALL BUSINESS, CONTRACTS TOTALING $164,505,408 WERE AWARDED TO CONCERNS QUALIFYING AS "SMALL BUSINESS" CONCERNS. SAID REPORT DISCLOSES FURTHER THAT SUCH SUM REPRESENTS 11 PERCENT OF THE TOTAL PROCUREMENT OF THE AGENCIES AUTHORIZED UNDER THE ACT; 51 PERCENT OF THE TOTAL PROCUREMENT OF THE DEPARTMENT OF THE ARMY; AND 41 PERCENT OF THE TOTAL PROCUREMENT BY THE NAVY DEPARTMENT. I AM NOT AWARE OF ANY INSTANCES IN CONNECTION WITH SUCH TOTAL PROCUREMENT WHERE AWARDS OF CONTRACTS WERE MADE, AFTER ADVERTISING, TO OTHER THAN THE LOW BIDDER, SOLELY ON THE BASIS THAT THE CONCERN RECEIVING THE AWARD QUALIFIED AS A "SMALL BUSINESS" CONCERN, SUCH AS IN THE CONTRACTS HERE UNDER CONSIDERATION.

UNDER THE CIRCUMSTANCES, IT MUST BE CONCLUDED THAT THE AWARDS OF THE CONTRACTS HEREIN QUESTION TO THE E. J. GIVREN SHOE COMPANY AND THE HUBBARD SHOE COMPANY, WHO WERE NOT THE LOW BIDDERS IN RESPONSE TO THE INVITATIONS INVOLVED, SHOULD NOT HAVE BEEN MADE. HOWEVER, SINCE IT IS APPARENT THAT THE AWARDS IN THESE INSTANCES WERE MADE IN GOOD FAITH PRIOR TO AN AUTHORITATIVE INTERPRETATION OF THE STATUTE, THIS OFFICE WILL NOT FURTHER OBJECT TO THE AWARDS AS MADE. STEPS SHOULD BE TAKEN ADMINISTRATIVELY, HOWEVER, TO INSURE PROPER COMPLIANCE WITH THE STATUTE IN THE FUTURE.