B-153667, APR. 22, 1964

B-153667, APR. 22, 1964

TO EVANS COOPERAGE COMPANY, INC.:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED MARCH 3, 1964, WITH ENCLOSURES, PROTESTING THE AWARD PROCEDURES EMPLOYED IN REQUEST FOR PROPOSALS NO. DSA 4-64-1298, ISSUED BY DEFENSE GENERAL SUPPLY CENTER, RICHMOND, VIRGINIA, ON JANUARY 20, 1964, IN PROCURING 55-GALLON STEEL DRUMS. YOUR PROTEST IS PREDICATED ON THE BASIS THAT WHEREAS THE PROCUREMENT OF 55-GALLON STEEL DRUMS, A STANDARD ITEM, WAS MADE PREVIOUSLY ON A SEALED-BID BASIS, THE LATEST PROCUREMENT IS BEING ACCOMPLISHED BY THE SOLICITATION OF OFFERS UNDER REQUESTS FOR PROPOSALS AND BY THE NEGOTIATION OF CONTRACTS BASED UPON SUCH PROPOSALS. YOU STATE THAT THIS PROCEDURE DOES NOT GIVE PROPER PRIORITY AND CONSIDERATION TO SMALL BUSINESS FIRMS IN GENERAL, AND, IF THE AWARD PROCEDURE REFERRED TO WAS ABANDONED AND NOT IN GOOD STANDING PRIOR TO THE BID OPENING, AS YOU BELIEVE, THEN IT WOULD APPEAR THAT THERE IS EVERY REASON TO REQUIRE THE THE BID BE REISSUED AND PROPER PRIORITY AND CONSIDERATION BE GIVEN TO SMALL BUSINESS FIRMS.

THE RECORD DISCLOSES THAT THE ITEMS IN QUESTION ARE BEING PROCURED UNDER THE DEPARTMENT OF DEFENSE LABOR SURPLUS AREA PROGRAM. THIS PROGRAM WAS INITIATED ON A TRIAL BASIS BY MEMORANDUM DATED OCTOBER 22, 1962, FROM THE DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR PROCUREMENT, UNDER WHICH AN INITIAL TEST PROGRAM OF 85 SELECTED CASES WAS FIRST INSTITUTED. WHILE THE PROCUREMENTS INCLUDED IN SUCH PROGRAM WERE CONCLUDED ON JULY 15, 1963, A CONTINUANCE OF THE PROGRAM HAD BEEN AUTHORIZED PENDING CORRELATION OF THE RESULTS ON THE INITIAL CASES AND FINAL DETERMINATION AS TO ACCEPTANCE OR NONACCEPTANCE OF THE TEST PROCEDURE BY THE DEPARTMENT OF DEFENSE FOR OVER- ALL USE.

UNDER THE PROCEDURE ESTABLISHED FOR THE TEST PROGRAM, SELECTED PROCUREMENTS ESTIMATED TO EXCEED $200,000, IN WHICH SUBCONTRACTING NORMALLY RANGES FROM 25 PERCENT TO 40 PERCENT OF THE CONTRACT PRICE, ARE NEGOTIATED UNDER ASPR 3-201.2 (B) (I). AT LEAST AN INITIAL AND A SUBSEQUENT ROUND OF NEGOTIATIONS ARE CONDUCTED BASED UPON THE OFFERS RECEIVED. IF THE LOW EVALUATED OFFER IS SUBMITTED BY A LABOR SURPLUS AREA CONCERN, I.E., A CONCERN WHICH AGREES TO PERFORM THE SPECIFIED MINIMUM PERCENTAGE (25 PERCENT TO 40 PERCENT) OF THE CONTRACT PRICE IN LABOR SURPLUS AREAS, AWARD IS MADE TO THAT FIRM. IF THE LOW OFFEROR DOES NOT AGREE TO PERFORM THE SPECIFIED PERCENTAGE OF THE CONTRACT PRICE IN LABOR SURPLUS AREAS, LABOR SURPLUS AREA CONCERNS SUBMITTING PRICE PROPOSALS WITHIN 120 PERCENT OF THE LOW OFFEROR'S PRICE ARE GIVEN AN OPPORTUNITY TO MATCH THE PRICE OF THE LOW OFFEROR IN THE FOLLOWING ORDER:

1. LABOR SURPLUS AREA FIRMS WHICH ARE ALSO SMALL BUSINESS CONCERNS, BEGINNING WITH THE LOWEST OFFEROR.

2. OTHER LABOR SURPLUS AREA CONCERNS, BEGINNING WITH THE LOWEST OFFEROR.

IN THE EVENT NO LABOR SURPLUS AREA CONCERN AGREES TO MATCH THE PRICE OF THE LOW OFFEROR, AWARD IS MADE TO THE LOW OFFEROR.

WITHIN THE DEFENSE SUPPLY AGENCY WE ARE ADVISED THAT THIS PROGRAM IS CLOSELY CONTROLLED BY THE AGENCY'S SPECIAL ASSISTANT FOR ECONOMIC UTILIZATION. ALL PROCUREMENTS TO BE EFFECTED UNDER THESE PROCEDURES MUST RECEIVE HIS PRIOR APPROVAL. UNDER THIS PROCEDURE REQUEST FOR PROPOSALS NO. DSA 4-64-1298 WAS ISSUED ON JANUARY 20, 1964. ON FEBRUARY 4, 1964, IT WAS DETERMINED THAT NO MORE SOLICITATIONS WOULD BE ISSUED UNDER THE SPECIAL LABOR SURPLUS AREA PROCEDURE. PROVISION WAS MADE, HOWEVER, FOR COMPLETING THOSE SOLICITATIONS ALREADY ISSUED.

IN EFFECT THE ABOVE PROCEDURE WAS APPROVED BY THIS OFFICE IN OUR DECISION OF JUNE 1, 1962, B-148512, 41 COMP. GEN. 787, WHICH DENIED A PROTEST AGAINST AWARD TO AN OFFEROR WHO QUALIFIED AS A LABOR SURPLUS AREA CONCERN BASED UPON PERFORMANCE OF 50 PERCENT OF THE CONTRACT IN A LABOR SURPLUS AREA. AS INDICATED IN THAT DECISION 10 U.S.C. 2304 (A) (I) AUTHORIZES THE NEGOTIATION OF PROCUREMENTS WHEN THE HEAD OF AN AGENCY DETERMINES SUCH ACTION IS NECESSARY IN THE PUBLIC INTEREST DURING A PERIOD OF NATIONAL EMERGENCY DECLARED BY THE PRESIDENT. PURSUANT THERETO PARAGRAPH 3-201.2 (B) (I) OF THE ARMED SERVICES PROCUREMENT REGULATION AUTHORIZES THE NEGOTIATION OF PROCUREMENTS MADE IN KEEPING WITH LABOR SURPLUS SET-ASIDE PROGRAMS. IN VIEW THEREOF AND SINCE THE LOWEST PRICE OBTAINABLE WAS TO BE ESTABLISHED THROUGH UNRESTRICTED SOLICITATION OF PROPOSALS WITH NO INDICATION THAT A PRICE DIFFERENTIAL WOULD BE PAID AS A RESULT OF AWARD TO A LABOR SURPLUS AREA CONCERN, OUR DECISION OF JUNE 1, 1962, HELD THAT THE PROCEDURE WAS NOT CONTRARY TO LAW.

THE ONLY DIFFERENCE BETWEEN THE PROCEDURES FOLLOWED IN THAT CASE AND THE PROCEDURES FOLLOWED IN THE INSTANT PROCUREMENT IS THAT A BIDDER MAY QUALIFY AS A LABOR SURPLUS AREA CONCERN BY PERFORMING 25 PERCENT, RATHER THAN 50 PERCENT OF THE CONTRACT IN LABOR SURPLUS AREAS. WHILE IT IS TRUE THAT ASPR 1-801.1 PRESENTLY DEFINES A LABOR SURPLUS AREA CONCERN AS ONE WHICH WILL INCUR COSTS OF MORE THAN 50 PERCENT OF THE CONTRACT PRICE IN AREAS OF SUBSTANTIAL AND PERSISTENT LABOR SURPLUS, SUCH DEFINITION DOES NOT OPERATE TO PRECLUDE THE INSTITUTION AND IMPLEMENTATION OF A PROPERLY AUTHORIZED TEST PROGRAM OF THE TYPE HERE INVOLVED.

WE HAVE REVIEWED THE RECORDS OF THE INSTANT PROCUREMENT AND BASED UPON SUCH REVIEW WE SEE NO BASIS ON WHICH IT MAY BE CONCLUDED THAT THE OPPORTUNITY WAS NOT GIVEN TO ALL MANUFACTURERS OF THIS ITEM TO COMPETE UNDER THE TEST PROGRAM PROCEDURE, OR THAT THE TERMS UNDER WHICH OFFERS WERE SOLICITED OPERATED TO LIMIT THE NUMBER OF RESPONSIVE OFFERS RECEIVED, OR THAT THE PRICES OF NEGOTIATED CONTRACTS WHICH MAY BE BASED UPON SUCH OFFERS WOULD INCLUDE ANY PRICE DIFFERENTIAL RESULTING FROM AN AWARD TO SURPLUS LABOR AREA CONCERNS.

UNDER THE CIRCUMSTANCES WE MUST CONCLUDE THAT NEGOTIATION OF THE INSTANT PROCUREMENT REPRESENTS A VALID EXERCISE OF THE CONTRACTING AUTHORITY OF THE DEFENSE SUPPLY AGENCY. THIS OFFICE THEREFORE WILL INTERPOSE NO OBJECTION TO AWARD OF A CONTRACT UNDER THE REQUEST FOR PROPOSAL HERE INVOLVED. THE DETERMINATION TO DISCONTINUE THE FUTURE USE OF THE TEST PROGRAM PROCEDURE DID NOT AFFECT ITS VALIDITY WITH RELATION TO THOSE REQUESTS FOR PROPOSALS ISSUED PRIOR TO FEBRUARY 4, 1964.