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B-155122, DEC. 3, 1964

B-155122 Dec 03, 1964
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YOU STATE THAT THE CRITICAL ISSUE TO BE DETERMINED IS WHETHER. YOU FURTHER ADVISE THAT IF THE PROCESSING BY FOREMOST OF RAW MILK FURNISHED BY CAMPA IS MANUFACTURING UNDER THE DEFINITIONS ADOPTED BY THE SMALL BUSINESS ADMINISTRATION (SBA). THEN CAMPA IS NOT A SMALL BUSINESS CONCERN FOR THE PURPOSES OF THIS PROCUREMENT BECAUSE THE PRODUCTS IT WILL DELIVER ARE TO BE MANUFACTURED BY A LARGE BUSINESS CONCERN. THE ADMITTED FACTS INVOLVED IN THIS PROCUREMENT ARE AS FOLLOWS. SOUR CREAM AND COTTAGE CHEESE WILL BE OBTAINED BY CAMPA FROM ITS CONSTITUENT MEMBERS FOR DELIVERY TO FOREMOST WHICH WOULD RECEIVE THE RAW MILK FOR STANDARDIZING. YOU CONTEND THAT SUCH DECISION IS IN DIRECT CONFLICT WITH APPLICABLE SBA REGULATIONS IN THAT UNDER 13 CFR 121.3-1 (B).

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B-155122, DEC. 3, 1964

TO RIDDLE, O-HERIN AND NEWBERRY, ATTORNEYS AT LAW:

BY LETTER DATED NOVEMBER 19, 1964, YOU MADE REFERENCE TO YOUR PRIOR LETTER OF NOVEMBER 4 AND REQUESTED THAT WE RECONSIDER OUR DECISION OF NOVEMBER 6, 1964, TO YOU, WHEREIN WE DENIED THE PROTEST OF SUNNY HILL FARMS DAIRY CO., INC., AGAINST THE AWARD OF A CONTRACT BY THE DEPARTMENT OF THE AIR FORCE TO THE CENTRAL ARKANSAS MILK PRODUCERS ASSOCIATION (CAMPA) FOR THE FURNISHING OF DAIRY PRODUCTS TO BLYTHEVILLE AIR FORCE BASE.

YOU STATE THAT THE CRITICAL ISSUE TO BE DETERMINED IS WHETHER, UNDER THE ADMITTED FACTS, FOREMOST DAIRIES, INC.--- A LARGE BUSINESS CONCERN--- WOULD BE THE MANUFACTURER OF THE DAIRY PRODUCTS TO BE FURNISHED BY CAMPA UNDER THE CONTRACT. YOU FURTHER ADVISE THAT IF THE PROCESSING BY FOREMOST OF RAW MILK FURNISHED BY CAMPA IS MANUFACTURING UNDER THE DEFINITIONS ADOPTED BY THE SMALL BUSINESS ADMINISTRATION (SBA), THEN CAMPA IS NOT A SMALL BUSINESS CONCERN FOR THE PURPOSES OF THIS PROCUREMENT BECAUSE THE PRODUCTS IT WILL DELIVER ARE TO BE MANUFACTURED BY A LARGE BUSINESS CONCERN. THE ADMITTED FACTS INVOLVED IN THIS PROCUREMENT ARE AS FOLLOWS.

RAW MILK FOR PROCESSING INTO HOMOGENIZED MILK, SKIM MILK, CHOCOLATE MILK, BUTTERMILK, WHIPPING CREAM, SOUR CREAM AND COTTAGE CHEESE WILL BE OBTAINED BY CAMPA FROM ITS CONSTITUENT MEMBERS FOR DELIVERY TO FOREMOST WHICH WOULD RECEIVE THE RAW MILK FOR STANDARDIZING, HOMOGENIZING, PASTEURIZING, BOTTLING AND DELIVERING TO CAMPA F.O.B. FOREMOST'S DOCK. TITLE TO THE MILK WOULD REMAIN IN CAMPA AND ALL PACKAGING MATERIALS BEARING THE CAMPA LABEL WOULD BE FURNISHED TO FOREMOST. ACTUAL DELIVERY WOULD BE MADE TO THE AIR BASE BY CAMPA.

THE SBA SIZE APPEALS BOARD SUSTAINED THE APPEAL OF CAMPA AND HELD THAT THE DAIRY PRODUCTS TO BE SUPPLIED WOULD BE THE PRODUCTS OF CAMPA FOR THE REASONS THAT CAMPA WOULD BE PURCHASING THE SERVICES RATHER THAN THE PRODUCTS OF FOREMOST, AND THAT THE SERVICES SO PURCHASED WOULD NOT BE SO EXTENSIVE AS TO CONVERT THE PRODUCTS OF CAMPA INTO THOSE OF FOREMOST.

YOU CONTEND THAT SUCH DECISION IS IN DIRECT CONFLICT WITH APPLICABLE SBA REGULATIONS IN THAT UNDER 13 CFR 121.3-1 (B), AS REVISED BY 29 F.R. 11525, AUGUST 12, 1964, SBA IS REQUIRED TO USE THE STANDARD INDUSTRIAL CLASSIFICATION (SIX) MANUAL, AS AMENDED, IN DEFINING INDUSTRIES FOR SIZE STANDARDS PURPOSES. IN THAT CONNECTION, YOU POINT OUT THAT THE SIC MANUAL (1957 EDITION) CONTAINS THE FOLLOWING INDUSTRY CLASSIFICATIONS AT PAGES 47 AND 48:

"202 DAIRY PRODUCTS

THIS GROUP INCLUDES ESTABLISHMENTS ENGAGED IN: (1) MANUFACTURING CREAMERY BUTTER; NATURAL CHEESE; CONDENSED AND EVAPORATED MILK; ICE CREAM AND FROZEN DESSERTS; AND SPECIAL DAIRY PRODUCTS, SUCH AS PROCESSED CHEESE AND MALTED MILK; AND (2) IN PROCESSING (PASTEURIZING, HOMOGENIZING, VITAMINIZING, BOTTLING) FLUID MILK AND CREAM FOR WHOLESALE OR RETAIL DISTRIBUTION. MILK RECEIVING STATIONS PRIMARILY ENGAGED IN THE ASSEMBLY AND RESHIPMENT OF BULK MILK FOR THE USE OF MANUFACTURING OR PROCESSING PLANTS ARE NOT INCLUDED IN THIS GROUP.

"2026 FLUID MILK

ESTABLISHMENTS PRIMARILY ENGAGED IN PROCESSING (PASTEURIZING, HOMOGENIZING, VITAMINIZING, BOTTLING) AND DISTRIBUTING FLUID MILK AND CREAM, AND RELATED PRODUCTS.'

WHILE CERTAIN SIC INDUSTRY CLASSIFICATIONS ARE CURRENTLY USED BY SBA IN DETERMINING BUSINESS SIZE, ITS USE HAS BEEN RESTRICTED TO THE IDENTIFICATION OF CATEGORIES OF INDUSTRY BY THE NUMBER OF EMPLOYEES. THUS, UNDER 13 CFR 121.3-8 (B) (3), ANY CONCERN BIDDING ON ITS MANUFACTURED PRODUCT IS CLASSIFIED AS SMALL BUSINESS IF "IT IS BIDDING ON A CONTRACT FOR A PRODUCT CLASSIFIED WITHIN AN INDUSTRY SET FORTH IN SCHEDULE B * * * AND ITS NUMBER OF EMPLOYEES DOES NOT EXCEED THE SIZE STANDARD ESTABLISHED FOR THAT INDUSTRY.' SCHEDULE "B," ENTITLED "INDUSTRY EMPLOYMENT SIZE STANDARDS FOR THE PURPOSE OF GOVERNMENT PROCUREMENT," LISTS VARIOUS SIC MANUFACTURING CLASSIFICATIONS BY MAJOR GROUPS AND RELATES EACH MANUFACTURING INDUSTRY TO AN EMPLOYMENT SIZE STANDARD (NUMBER OF EMPLOYEES). HOWEVER, SCHEDULE "B" DOES NOT INCLUDE "DAIRY PRODUCTS" WITHIN SIC "MAJOR GROUP 20--- FOOD AND KINDRED PRODUCTS" AS A MANUFACTURED PRODUCT FOR SIZE STANDARDS PURPOSES. THUS, SBA HAS NOT EMBODIED IN ITS SIZE REGULATIONS RESPECTING MANUFACTURED PRODUCTS ANY INDICATION THAT DAIRY PRODUCTS ARE MANUFACTURED PRODUCTS.

UNDER 13 CFR 121.3-8 (B) (2), A SMALL BUSINESS BIDDER WHICH OFFERS TO FURNISH A PRODUCT NOT MANUFACTURED BY IT MUST FURNISH IN THE PERFORMANCE OF THE CONTRACT "THE PRODUCTS OF A SMALL BUSINESS MANUFACTURER OR PRODUCER.' IN OUR OPINION, THE ONLY QUESTION FOR DETERMINATION IS WHETHER CAMPA HAS OFFERED TO FURNISH PRODUCTS WHICH IT HAS PRODUCED OR WHETHER IT OFFERED TO FURNISH PRODUCTS MANUFACTURED OR PRODUCED BY FOREMOST. THE MILK PRODUCTS RESULTING FROM THE TREATMENT OF RAW MILK BY FOREMOST ARE NOT "PRODUCTS" OF FOREMOST WHICH IT "PRODUCED" WITHIN THE PURVIEW OF SUCH SIZE REGULATION. CAMPA THROUGH ITS CONSTITUENT MEMBERS PRODUCED THE RAW MILK PRODUCT AND ANY CHANGES MADE BY FOREMOST IN ITS PHYSICAL CHARACTERISTICS DID NOT DIVEST CAMPA OF ITS TITLE TO THE RAW MILK OR THE PRODUCTS THEREOF WHICH ARE TO BE DELIVERED TO THE GOVERNMENT UNDER THE CONTRACT. THIS IS NOT A CASE WHICH THE SIZE STANDARDS REGULATIONS INTERDICT, THAT IS, WHERE A LARGE BUSINESS MANUFACTURES A PRODUCT FOR A SMALL BUSINESS CONCERN FOR DELIVERY TO THE GOVERNMENT. INSTEAD, THE DAIRY PRODUCTS TO BE DELIVERED WILL BE THE PRODUCTS OF CAMPA THOUGH PROCESSED AND HANDLED BY A LARGE BUSINESS CONCERN. THE ESSENTIAL DETERMINATION REQUIRED TO BE MADE BY SBA UNDER THE REGULATIONS WAS WHETHER CAMPA WOULD FURNISH ITS DAIRY PRODUCTS TO THE GOVERNMENT. SBA, THE AGENCY CHARGED WITH STATUTORY RESPONSIBILITY OF MAKING THAT DETERMINATION, HAS FOUND THAT CAMPA WOULD BE PURCHASING THE SERVICES OF FOREMOST RATHER THAN ITS PRODUCTS. WE FIND NO LEGAL BASIS, ON REVIEW, TO DISAGREE WITH THAT DETERMINATION.

OUR DECISION OF NOVEMBER 6, 1964, DENYING YOUR PROTEST IS AFFIRMED.

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