B-153478, JAN. 18, 1965

B-153478, JAN. 18, 1965

TO LEAR SIEGLER, INC.:

REFERENCE IS MADE TO YOUR LETTERS OF AUGUST 3 AND 18, 1964, PROTESTING AGAINST AWARD OF CONTRACT FOR THE USAF TYPE MD-1 VERTICAL GYROSCOPE UNDER INVITATION NO. 33-657-65-26 TO GUIDANCE TECHNOLOGY, INC. WE ALSO HAVE YOUR ATTORNEY'S LETTER OF NOVEMBER 9, 1964, CONCERNING THIS MATTER.

THE BASIS FOR YOUR PROTEST UNDER THE SUBJECT PROCUREMENT IS THAT GUIDANCE TECHNOLOGY, INC., HEREINAFTER REFERRED TO AS GTI, DID NOT MEET THE MINIMUM STANDARDS REQUIRED OF RESPONSIBLE PROSPECTIVE CONTRACTORS UNDER PARAGRAPH 1-903.1 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR). PARTICULARLY, YOU CONTEND THAT GTI, AS A HISTORICALLY UNRELIABLE BIDDER, DOES NOT MEET THE MINIMUM STANDARDS OF SATISFACTORY PERFORMANCE AND INTEGRITY AND THAT AS A DEBTOR CORPORATION SUBJECT TO THE PROVISIONS OF CHAPTER XI OF THE BANKRUPTCY ACT, 11 U.S.C.A. 701, GTI DOES NOT MEET THE MINIMUM STANDARDS OF CREDIT.

THE RECORD SHOWS THAT THE CITED INVITATION WAS ISSUED IN JULY 1964, AND CALLED FOR A QUANTITY OF 540 MD-1 VERTICAL GYROSCOPES. THE MD-1 GYROSCOPE IS A CRITICAL SAFETY OF FLIGHT ITEM AND IS PROCURED BY THE DEPARTMENT OF THE AIR FORCE UNDER QUALIFIED PRODUCTS LIST PROCEDURES IN CONFORMANCE WITH THE ARMED SERVICES PROCUREMENT REGULATION. CONSEQUENTLY, THE INVITATION REQUIRED BIDDERS, PRIOR TO BIDDING, TO HAVE QUALIFIED THEIR PRODUCT IN CONFORMANCE TO THE QUALIFICATION TEST PROCEDURES ESTABLISHED FOR THE MD- 1. WHEN THE BIDS WERE OPENED ON JULY 31, 1964, PRICES BID BY YOUR FIRM, LEAR SIEGLER, INC., (LSI) WERE QUOTED AT $1,049 PER UNIT, AND BY GUIDANCE TECHNOLOGY AT $917 PER UNIT. THE GTI BID WAS $132 PER UNIT LOWER THAN THAT OF YOUR FIRM, AND GTI WAS OVERALL LOWER BY $85,054.

THE RECORD FURTHER SHOWS THAT ON JULY 31, 1964, SUBSEQUENT TO BID OPENING, A PROTEST WAS ENTERED BY YOUR FIRM TO THE CONTRACTING OFFICER AGAINST AN AWARD OF CONTRACT TO GTI. AS STATED IN YOUR PROTEST TO OUR OFFICE, THE BASIS OF YOUR PROTEST TO THE CONTRACTING OFFICER WENT TO THE DETERMINATION OF BIDDER RESPONSIBILITY, NAMELY, THE FINANCIAL POSITION OF GTI. A SIMILAR SITUATION WAS CONSIDERED IN OUR DECISION B 153478, DATED MAY 15, 1964, WHERE THE FINANCIAL POSITION OF GTI WAS SUCH THAT FINANCING TO A HIGH DEGREE BY THE GOVERNMENT WAS NEEDED TO ENSURE THE SUCCESSFUL OPERATIONS OF GTI DURING PERFORMANCE OF THE CONTRACT THERE INVOLVED. HOWEVER, IN THAT CASE, BECAUSE SUCH TYPE OF FINANCING IS INCONSISTENT WITH DEPARTMENT OF DEFENSE POLICY, IT WAS NOT PERMISSIBLE FOR THE CONTRACTING OFFICER TO PROVIDE THE FINANCING WHICH GTI REQUIRED FOR CONTRACT PERFORMANCE. A POSITIVE JUDGMENT AS TO THE RESPONSIBILITY OF GTI MAKING IT ELIGIBLE FOR CONTRACT AWARD AT THAT TIME COULD NOT BE MADE.

IN RESPECT TO THE PROCUREMENT HERE IN QUESTION, UNDER INVITATION NO. 33- 657-65-26, AND WITH REGARD TO THE FINANCIAL POSITION OF GTI INSOFAR AS RESPONSIBILITY IS CONCERNED, THE DEPARTMENT OF THE AIR FORCE REPORTS AS FOLLOWS:

"SINCE FILING ITS PETITION UNDER CHAPTER XI OF THE BANKRUPTCY ACT IN APRIL 1963 AS A RESULT OF FINANCIAL DIFFICULTIES, GTI HAS OPERATED UNDER THE PROTECTION OF THE COURT. THIS DEPARTMENT VIEWS THIS AS A REASONABLE COURSE OF ACTION SINCE CHAPTER XI IS DESIGNED TO PERMIT THIS TYPE OF OPERATION WHILE A REORGANIZATION OF THE COMPANY IS UNDERTAKEN. RATHER THAN FORCING SICK COMPANIES TO LIQUIDATE IN STRAIGHT BANKRUPTCY, CONGRESS HAS CREATED THIS METHOD OF SAVING SUCH COMPANIES IN ORDER TO PERMIT CREDITORS TO REALIZE GREATER BENEFITS BY RETAINING THE GOING CONCERN VALUE OF THE COMPANY INSTEAD OF GETTING ONLY THE FORCED SALE VALUE. ADDITION, BY SAVING SUCH COMPANIES, JOBS ARE SAVED AND COMPETITION RETAINED. GTI HAS TAKEN ADVANTAGE OF THIS STATUTORY PROVISION AND HAS OPERATED SUCCESSFULLY UNDER CHAPTER XI. WHEN IT ENTERED THIS STATUS IT OWED APPROXIMATELY $509,000 IN PROGRESS PAYMENTS. ADVANCE PAYMENTS WERE MADE TO IT AT THAT TIME FOR CONTINUANCE OF OPERATIONS UNDER GOVERNMENT CONTRACTS IT THEN HELD. NOW APPROXIMATELY 13 MONTHS LATER, GTI HAS LIQUIDATED ALL ITS PROGRESS PAYMENTS AND THE ADVANCE PAYMENTS, WHICH HAD REACHED A PEAK OF MORE THAN $500,000, ARE NOW REDUCED TO $99,000 AND WILL SOON BE LIQUIDATED. IN THE INTERIM PERIOD, IT HAS COMPLETED, TO THE SATISFACTION OF THE AIR FORCE, THE CONTRACTS IT THEN HELD PLUS SEVERAL ADDITIONAL SMALLER DOLLAR CONTRACTS AWARDED TO IT SINCE ENTERING INTO CHAPTER XI PROCEEDINGS. SOME LEADING COMPANIES, INCLUDING GENERAL DYNAMICS, HAVE ALSO SHOWN CONFIDENCE IN GUIDANCE TECHNOLOGY BY PLACING CONTRACTS WITH IT AND PROVIDING PROGRESS PAYMENTS. A CONTRACT WITH THE CANADIAN GOVERNMENT FOR PRODUCTION OF THE MD-1 GYRO WAS ENTERED INTO AND SUCCESSFULLY COMPLETED DURING THIS PERIOD.

"IT IS OUR JUDGMENT THAT PAST LOSSES SHOULD NOT PRECLUDE A COMPANY FROM COMPETING FOR FUTURE BUSINESS WHEN DEBTS RESULTING FROM SUCH LOSSES ARE ELIMINATED IN THE MANNER PRESCRIBED BY CONGRESS. IN OUR VIEW, GTI SHOULD BE JUDGED ON ITS ABILITY TO PERFORM THIS CONTRACT AT THIS TIME. UNDER DEFENSE PROCUREMENT CIRCULAR 3 THERE IS NO MANDATORY REQUIREMENT FOR EXCLUDING GTI FROM COMPETING FOR THIS REQUIREMENT. ALTHOUGH IT CONTINUES IN CHAPTER XI STATUS, ITS PERFORMANCE IS NO LONGER JEOPARDIZED BY A PENDING REORGANIZATION SINCE A DEFINITE PLAN OF REORGANIZATION HAS NOW BEEN AGREED TO BY THE PARTIES INVOLVED AND APPROVED BY THE ACTING ATTORNEY GENERAL OF THE UNITED STATES. IMPLEMENTATION OF THE APPROVED PLAN IS IMMINENT.'

IT IS FURTHER REPORTED THAT, IN VIEW OF THE ABOVE CIRCUMSTANCES, THE DEPARTMENT OF THE AIR FORCE WAS REQUIRED TO CONSIDER THE BID OF GTI AND AS THE LOW BIDDER, TO DETERMINE RESPONSIBILITY AS REQUIRED BY ASPR 1-905. THIS CONNECTION, IT IS NOTED THAT ASPR 1-905.2, PROVIDES IN RELEVANT PART AS FOLLOWS:

"WHEN INFORMATION WILL BE OBTAINED. GENERALLY INFORMATION REGARDING THE RESPONSIBILITY OF A PROSPECTIVE CONTRACTOR (INCLUDING PRE-AWARD SURVEYS (SEE 1-905.4) WHEN DEEMED NECESSARY) SHALL BE OBTAINED PROMPTLY AFTER BID OPENING OR RECEIPT OF PROPOSALS. * * *. NOTWITHSTANDING THE THE FOREGOING, INFORMATION REGARDING FINANCIAL RESOURCES (SEE 1 903.1 (I) AND PERFORMANCE CAPABILITY (SEE 1-903.1 (II) ( SHALL BE OBTAINED ON AS CURRENT A BASIS AS FEASIBLE WITH RELATION TO THE DATE OF CONTRACT AWARD.'

BASED ON THE FOREGOING, THE FACILITY CAPABILITY REPORT RENDERED IN CONNECTION WITH THE SOLICITATION RESULTED IN AFFIRMATIVE FINDINGS IN ALL AREAS OF PRODUCTION INCLUDING ESSENTIAL FACILITIES, TOOLS, TEST EQUIPMENT, MANPOWER SKILLS AND ORGANIZATION. IN THE AREA WHICH YOUR PROTEST IS PRIMARILY CONCERNED WITH, THAT IS, THE AREA OF FINANCIAL CAPACITY, FINANCIAL ANALYSIS OF THE DEPARTMENT OF THE AIR FORCE REVIEWED GTI'S CASH POSITION AND PROJECTIONS FOR THE CONTRACT PERIOD AND CONFIRMED THE CAPABILITY OF GTI TO PERFORM THE PROPOSED CONTRACT WITH CUSTOMARY PROGRESS PAYMENTS. FURTHERMORE, IT IS REPORTED THAT PRODUCTION COST DATA NOT NORMALLY AVAILABLE TO THE GOVERNMENT UNDER ADVERTISED PROCEDURES WAS REVIEWED AND IT WAS DETERMINED THAT THE CONTRACT CAN BE PERFORMED WITHOUT LOSS AT THE PRICE BID. ALSO, IT IS SHOWN THAT THE ASSISTANT SECRETARY OF THE AIR FORCE FOR FINANCIAL MANAGEMENT PERSONALLY REVIEWED WITH GTI THE DETAILED FINANCING PLANNED FOR THE CONTRACT AND CORROBORATED THE FINDINGS OF THE AIR FORCE FINANCIAL ANALYSIS. NONE OF THE FOREGOING REVIEWS CONSIDERED THE EFFECT OF REORGANIZATION, NOR WERE FINDINGS CONTINGENT UPON THE IMPROVED FINANCIAL POSITION WHICH REORGANIZATION WILL PROVIDE. BASED UPON THEIR THOROUGH STUDY OF THE MATTER, AND AFTER CONSIDERING ALL FACTORS AS TO GTI'S RESPONSIBILITY, THE DEPARTMENT OF THE AIR FORCE AWARDED THE CONTRACT FOR THE INSTANT PROCUREMENT TO GTI ON OCTOBER 13, 1964. THE DETERMINATION TO MAKE SUCH AWARD WAS CONCURRED IN BY THE ASSISTANT SECRETARY OF DEFENSE, INSTALLATIONS AND LOGISTICS, AS SHOWN IN LETTER OF OCTOBER 13, 1964, TO YOUR FIRM.

IN YOUR ATTORNEY'S LETTER OF NOVEMBER 9, 1964, TO OUR OFFICE, HE DISSENTS FROM THE DEPARTMENT OF THE AIR FORCE'S POSITIVE DETERMINATION OF RESPONSIBILITY ON TO GTI, AND RAISES THE ISSUE IN THE FORM OF THE FOLLOWING QUESTION:

"DOES NOT THE QUESTION OF RESPONSIBILITY OF A BIDDER SPEAK AS OF THE BID OPENING DATE?

YOUR ATTORNEY CONTENDS THAT IN VIEW OF ITS PAST FINANCIAL DIFFICULTIES AND PETITION IN BANKRUPTCY, WHICH FACTORS WERE CONSIDERED IN OUR DECISION OF MAY 15, 1964, GTI COULD NOT AND SHOULD NOT HAVE BEEN CONSIDERED A RESPONSIBLE BIDDER BY THE DEPARTMENT OF THE AIR FORCE FOR THE PRESENT PROCUREMENT. HOWEVER, IT IS OUR VIEW THAT IN ACCORDANCE WITH ASPR 1- 905.2, THE CONTRACTING OFFICER EMPLOYED THE MOST CURRENT INFORMATION ON FINANCIAL RESOURCES WHICH COULD BE AND WAS OBTAINED BEFORE AWARD OF A VALID CONTRACT. THE FACT THAT IN THE PAST GTI HAS HAD FINANCIAL DIFFICULTIES SHOULD NOT OPERATE TO BAR GTI FROM BEING AWARDED CONTRACTS WHEN THESE DIFFICULTIES ARE OVERCOME. THE ADMINISTRATIVE EVALUATION AS TO BIDDER'S RESPONSIBILITY WHICH WAS MADE AFTER BID OPENING DATE, BUT PRIOR TO AWARD, IS NOT OBJECTIONABLE, SINCE THE ULTIMATE OBJECTIVE IS THE DETERMINATION OF RESPONSIBILITY AS OF THE TIME OF AWARD OF A CONTRACT. SEE 39 COMP. GEN. 895; AND B-131286, DATED JUNE 4, 1957, IN WHICH WE SAID:

"IN REGARD TO THE FINANCIAL CLEARANCE GRANTED ON THE SECOND FACILITIES CAPABILITY REPORT, IT IS STATED THAT THE EVIDENCE OF FINANCIAL ASSISTANCE TO BE FURNISHED BY THE HUDSON COUNTY NATIONAL BANK, THE RELDAN TRADING COMPANY AND CRUCIBLE STEEL CORPORATION, AS SUBMITTED BY RANDY WIRE WORKS, WAS CONSIDERED SUFFICIENT TO RELY UPON AS GIVING REASONABLE ASSURANCE OF SUCCESSFUL PERFORMANCE OF THE PROPOSED CONTRACT FROM A FINANCIAL STANDPOINT.

"WE HAVE CONSISTENTLY HELD THAT THE QUESTION OF RESPONSIBILITY OF BIDDERS IS PRIMARILY A MATTER FOR CONSIDERATION BY THE CONTRACTING AGENCY. SEE IN THIS CONNECTION, O-BRIEN V. CARNEY, 6 F.SUPP. 761. THE BID OF RANDY WIRE WORKS WAS A FIRM BID AND THE ACCEPTANCE THEREOF, WITHOUT ANY INVESTIGATION WHATEVER BY THE GOVERNMENT AS TO ITS RESPONSIBILITY, WOULD HAVE CREATED A VALID AND BINDING CONTRACT. THE INVESTIGATION OF THE CORPORATION'S RESPONSIBILITY WAS SOLELY FOR THE PROTECTION AND BENEFIT OF THE GOVERNMENT. ORDINARILY, A LOW BIDDER IS ENTITLED TO AN AWARD UNLESS IT IS DETERMINED THAT THE BIDDER IS NOT QUALIFIED TO PERFORM OR FOR SOME OTHER SUBSTANTIAL REASON IT IS NOT TO THE ADVANTAGE OF THE GOVERNMENT TO MAKE THE AWARD TO THE LOW BIDDER, AND OUR OFFICE HAS CONSISTENTLY HELD THAT REJECTION OF A LOW BID MUST BE JUSTIFIED BY SUBSTANTIAL GROUNDS.

"IN THE INSTANT CASE, WHILE IT WAS ORIGINALLY DETERMINED THAT RANDY WIRE WORKS WAS NOT QUALIFIED, THE CORPORATION PROTESTED SUCH DETERMINATION AND APPARENTLY WAS ABLE TO RAISE SUFFICIENT DOUBT AS TO THE ACCURACY OR COMPLETENESS OF THE FIRST PRE-AWARD SURVEY TO WARRANT FURTHER INVESTIGATION. IN SUCH CIRCUMSTANCES, THE ACTION OF THE DEPARTMENT OF THE AIR FORCE IN CONDUCTING THE SECOND PREAWARD SURVEY CANNOT PROPERLY BE CONSIDERED AS NOT IN THE BEST INTEREST OF THE GOVERNMENT.'

QUESTIONS CONCERNING THE QUALIFICATIONS OF A PROPOSED CONTRACTOR ARE FOR RESOLUTION PRIMARILY BY THE ADMINISTRATIVE OFFICERS CONCERNED. IN THE ABSENCE OF ANY SHOWING OF BAD FAITH OR LACK OF A REASONABLE BASIS FOR THE DETERMINATION, WE ARE NOT JUSTIFIED IN OBJECTING TO A DETERMINATION MADE ON THIS QUESTION BY THE ADMINISTRATIVE AGENCY. 37 COMP. GEN. 430; 36 ID. 42. MOREOVER, AN UNFAVORABLE DETERMINATION DOES NOT IN ITSELF CONSTITUTE ANY GROUND FOR SIMILAR DETERMINATIONS IN FUTURE CASES SINCE EACH DETERMINATION OF RESPONSIBILITY MUST BE BASED ON THE SITUATION EXISTING AS OF THE TIME WHEN SUCH DETERMINATION IS MADE. HERE, THE AIR FORCE HAS DETERMINED THAT GTI IS A RESPONSIBLE CONTRACTOR AND THE RECORD DISCLOSES NO SHOWING OF BAD FAITH OR LACK OF A REASONABLE BASIS FOR SUCH DETERMINATION.

IN VIEW OF THE RECORD BEFORE US, WE SEE NO VALID BASIS FOR OBJECTING TO THE ACTIONS TAKEN BY THE DEPARTMENT OF THE AIR FORCE IN DETERMINING THAT GTI, AS THE RESPONSIBLE LOW BIDDER, WAS ENTITLED TO AWARD OF THE INSTANT PROCUREMENT.