B-144621, SEP. 27, 1961

B-144621, SEP. 27, 1961

TO COVINGTON AND BURLING:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 22, 1961, REQUESTING ON BEHALF OF YOUR CLIENT, STANDARD STEEL WORKS, INC., NORTH KANSAS CITY, MISSOURI, RECONSIDERATION OF OUR DECISION B-144621, AUGUST 1, 1961, TO THE SECRETARY OF THE ARMY, IN WHICH WE CONCLUDED, FOR THE REASONS STATED THEREIN, THAT AN AWARD OF A CONTRACT TO YOUR CLIENT FOR THE FURNISHING OF 50 BITUMINOUS MATERIAL DISTRIBUTORS SHOULD BE CANCELED. YOUR REQUEST FOR RECONSIDERATION IS MADE ON THE BASIS OF ADDITIONAL FACTUAL INFORMATION IN THE POSSESSION OF THE SMALL BUSINESS ADMINISTRATION (SBA), PARTICULARLY A LETTER FROM MR. HARL S. DAY TO MR. C. I. MAYER, SBA REGIONAL DIRECTOR,DATED AUGUST 10, 1961, AND COMMUNICATIONS FROM MR. ARTHUR L. SPARKS, SBA SUSS, SBA GENERAL COUNCIL, WASHINGTON, D.C., DATED AUGUST 9 AND AUGUST 18, 1961.

THE RECORD BEFORE THIS OFFICE UPON WHICH OUR DECISION OF AUGUST 1, 1961, WAS BASED WAS SET FORTH IN CONSIDERABLE DETAIL IN THAT DECISION AND NEED NOT BE RESTATED HEREIN. HOWEVER, THOSE PORTIONS OF THE DECISION WHICH HAVE A BEARING ON THE MERITS OF THE PRESENT RECONSIDERATION WILL BE DISCUSSED BELOW.

THE MEMORANDUM DATED AUGUST 9, 1961, FROM MR. ARTHUR L. SPARKS, SBA REGIONAL COUNSEL, TO MR. FREDRIC T. SUSS, IS LARGELY A NOTICE COMMUNICATION INFORMING MR. SUSS THAT MR. DAY, PRESIDENT OF STANDARD STEEL, WAS PREPARING A LETTER CONTAINING NEW MATTER IN REBUTTAL OF THE RECENT DETERMINATION THAT STANDARD STEEL WORKS, INC., WAS NOT SMALL BUSINESS. THE MEMORANDUM ITSELF CONTAINS NO NEW MATTER PERTINENT TO THE MERITS OF OUR DECISION OF AUGUST 1, 1961.

THE MEMORANDUM DATED AUGUST 18, 1961, FROM MR. SPARKS TO MR. SUSS, DISCUSSES AND SUMMARIZES THE CONTENTIONS MADE BY MR. DAY IN HIS LETTER OF AUGUST 10, 1961, TO MR. C. I. MOYER. FOR THE PURPOSE OF READY REFERENCE WE HAVE NUMBERED THE PARAGRAPHS OF THIS MEMORANDUM AND IT READS, IN PERTINENT PART, AS FOLLOWS:

1. "IN FURTHER REGARD TO OUR COMMUNICATION OF AUGUST 9, 1961, AND AT THE FURTHER REQUEST OF GEORGE DEPEW, CHIEF, P AND TA, WE HAVE REVIEWED OUR FILE WITH PARTICULAR ATTENTION TO THE FACTUAL STATEMENTS IN THE LETTER OF AUGUST 10, 1961 OF HARL S. DAY TO C. I. MAYOR.

2. "THE IMPORTANCE OF FACTUAL ACCURACY, OF COURSE, IS PARAMOUNT IN VIEW OF THE FACT THAT THE COMPTROLLER GENERAL'S LETTER TO THE SECRETARY OF THE ARMY OF AUGUST 1, 1961, ON PAGE 12 THEREOF, RULES A DISPUTED QUESTION OF FACT AGAINST STANDARD ON THE BASIS OF THE ACCEPTANCE OF A PRESUMPTION IN FAVOR OF AN ADMINISTRATIVE REPORT, AND ON THE THEORY THAT THERE WAS AN ABSENCE OF EVIDENCE SUFFICIENTLY CONVINCING TO OVERCOME THE PRESUMPTION OF THE CORRECTNESS OF SUCH A REPORT.

3. "MR. DAY'S LETTER OF AUGUST 10, 1961 DIRECTS PARTICULAR ATTENTION TO PAGE 2 OF THE COMPTROLLER GENERAL'S LETTER ON WHICH IS QUOTED A REPORT DATED JULY 7, 1961 FROM THE SMALL BUSINESS ADMINISTRATION.

4. "IN REGARD TO PARAGRAPH 1 OF THE QUOTED REPORT, MR. DAY STATES THAT "WE WERE NOT BIDDING ON ANY SMALL BUSINESS CONTRACTS AND WE HAD MADE NO CERTIFICATION ONE WAY OR ANOTHER" ON JUNE 9, 1960 WHEN THIS OFFICE RECEIVED A TELEPHONE TELEGRAM FROM THE ST. LOUIS OFFICE. OUR FILES SHOW THAT MR. DAY IS CORRECT IN HIS STATEMENT AND THE INCLUSION OF THIS PARAGRAPH IN THE SBA REPORT CREATES A SOMEWHAT MISLEADING IMPRESSION AS TO THE COURSE AND DEVELOPMENT OF EVENTS.

5. "IT MUST BE BORNE IN MIND THAT THE INVITATION FOR BID ON THE SUBJECT CONTRACT WAS NOT ISSUED UNTIL JULY 18, 1960 SO THAT THE REPLY OF THE KANSAS CITY OFFICE TO ST. LOUIS ON JUNE 23, 1960 (COVERED IN PARAGRAPH 2 OF JULY 7, 1961 SBA REPORT) WAS NOT IN CONNECTION WITH THE SUBJECT CONTRACT AT ALL.

6. "WHEN MR. DAY STATES ON PAGE 2 OF HIS LETTER THAT "IT WAS AT THIS POINT THAT I WAS ASKED TO FILL OUT YOUR STANDARD SBA FORM 355" HE IS ENTIRELY CORRECT AND THE REQUEST, AS NOTED, PRECEDED THE BID ON THE SUBJECT CONTRACT.

7. "MR. DAY'S STATEMENT AS TO THE NATURE OF THE DISCUSSIONS AS BEING RELATED TO THE INTERPRETATION OF THE REGULATIONS REGARDING INVESTMENT COMPANIES AND HIS POSITION THAT INSURANCE COMPANIES WERE EXEMPT IS A CORRECT STATEMENT OF THE NATURE OF THE CONTINUING DISCUSSION THAT WAS GOING ON AT THAT TIME AND CONTEMPORANEOUS DOCUMENTS IN OUR FILE AND DISCUSSIONS WITH PERSONNEL IN THE KANSAS CITY OFFICE CONFIRMS THAT STATEMENT.

8. "MR. DAY'S STATEMENT IN PARAGRAPH 2 ON PAGE 3 IN HIS LETTER OF AUGUST 10, 1961 WITH PARTICULAR REFERENCE TO PARAGRAPH 5 OF THE SBA REPORT OF JULY 7, 1961 CANNOT BE DISPUTED BY THE RECORDS OF THIS OFFICE. THE PARTICULAR TELEPHONE CONVERSATION CANNOT BE IDENTIFIED AND THE TRANSMITTAL OF THE MEMORANDUM OF AUGUST 10, 1960 ON SEPTEMBER 8, 1960 PARTICULARLY THE LAST PARAGRAPH THEREOF, LEFT OPEN ADDITIONAL FACTUAL INFORMATION TO BE FURNISHED BY STANDARD AND BOTH THIS OFFICE AND MR. DAY OBVIOUSLY SO UNDERSTOOD THAT MEMORANDUM.

9. "THE GENERAL EMPHASIS ON THE TELEPHONE CALL AND THE DETERMINATION OF THE COMPTROLLER GENERAL THAT CAUSED HIM TO REFUSE TO APPLY THE GENERAL RULE THAT THE FINAL DETERMINATION OF ELIGIBILITY IS TO BE MADE AS OF THE DATE OF THE AWARD SEEMS TO US TO PLACE UNDUE, IF NOT UNFAIR, EMPHASIS ON A SINGLE INCIDENT IN CONNECTION WITH A QUITE COMPLICATED SERIES OF EVENTS. THREE SEPARATE SBA OFFICES WERE INVOLVED (ST. LOUIS, KANSAS CITY AND DALLAS) AND MR. DAY WAS PROCEEDING GENERALLY PURSUANT TO ADVICE AND INFORMATION THAT WAS FURNISHED HIM BY THE GOVERNMENT. WE DO NOT PRESUME TO BE CRITICAL OF THE ANALYSIS MADE OF THE FACTS AS REVEALED BY OUR FILE, BUT WE DO FEEL THAT FAIRNESS REQUIRES THE STATEMENT CONCERNING THE FACTS AS REVEALED BY OUR FILE AS WE HAVE MADE THEM HEREIN.

10. "FURTHER PERTINENT FACTS HAVE BEEN CALLED TO MY ATTENTION BY JOHN OLIVER, LOCAL COUNSEL FOR STANDARD STEEL CORPORATION. FIRST, ALTHOUGH HE IS NOT FAMILIAR TO THE EXTENT WITH WHICH THE POINT WAS ARGUED, PARAGRAPH 80 (A/-3 (C) (3) OF THE U.S.C. TITLE 15 DEFINITELY EXCLUDES "ANY BANK OR INSURANCE COMPANY; ETC.' AS NECESSARY REGISTRANTS UNDER THE INVESTMENT COMPANY ACT OF 1940. AS A CORPORATE ENTITY EXEMPT FROM REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940 AND SPECIFICALLY SPELLED OUT AS SUCH IN THE CODE, IT LOGICALLY FOLLOWS THAT AN INSURANCE COMPANY CANNOT BE ON "AFFILIATE" UNDER REGULATION 121. 3-2 (A) WHEREIN CONCERNS ARE NOT AFFILIATES IF REQUIRED REGISTER (OR ARE DECLARED EXEMPT) UNDER THE INVESTMENT COMPANY ACT OF 1940 AS AMENDED.

11. "HE FURTHER TAKES EXCEPTION TO THE COMPTROLLER GENERAL'S RULING BASED UPON THE SIZE APPEALS BOARD FINDINGS AT THE BOTTOM OF PAGE 10 OF THE GENERAL'S REPORT. I QUOTE,"THE CIRCUMSTANCES OUTLINED ABOVE PRESENT TWO BASIC QUESTIONS FOR OUR CONSIDERATION: (1) WHAT EFFECT SHOULD BE GIVEN TO THE FACT THAT STANDARD PRIOR TO THE SUBMISSION OF ITS BID ON AUGUST 16, 1960 WAS INFORMED BY SMALL BUSINESS ADMINISTRATION'S REPRESENTATIVE THAT STANDARD WAS AFFILIATED BY VIRTUE OF STOCK OWNERSHIP WITH OTHER CONCERNS SO THAT IT COULD NOT BE CLASSIFIED AS A SMALL BUSINESS, AND (2) WHAT EFFECT SHOULD BE GIVEN THE LATEST DETERMINATION BY SBA IN VIEW OF THE FACT THAT STANDARD HAS PROCEEDED WITH PERFORMANCE UNDER THE CONTRACT? " HE FURTHER STATES THAT IT IS HIGHLY INCONSISTENT THAT THE COMPTROLLER GENERAL SHOULD MAKE A STATEMENT THAT STANDARD STEEL COULD NOT BE CLASSIFIED AS SMALL BUSINESS PRIOR TO THE SUBMISSION OF ITS BID AUGUST 16, 1960, AND THE FILE REVEALS THAT SAMUEL SOLOMON, DIRECTOR OF THE OFFICE OF SMALL BUSINESS SIZE STANDARD ON JANUARY 13, 1961, REITERATED THAT THERE HAD BEEN NO CHANGE IN THE DETERMINATION MADE BY DEPUTY ADMINISTRATOR HIPKINS ON NOVEMBER 30, 1960 THAT "STANDARD STEEL WORKS, INC. IS A SMALL BUSINESS FOR THE PURPOSE OF GOVERNMENT PROCUREMENT.' THIS ALSO CONTRADICTS THE COMPTROLLER'S STATEMENT ON PAGE 12 OF THE OPINION THAT "THE RECORD SHOWS THAT AS EARLY AS JULY 7, 1960, STANDARD KNEW THAT ITS SIZE STATUS WAS SUBJECT TO QUESTION.' IN REGARD TO (2) OF THE COMPTROLLER GENERAL'S QUESTION PUT ABOVE, STANDARD PROCEEDED WITH THE PERFORMANCE OF THE CONTRACT UNDER INSTRUCTIONS RECEIVED FROM THE UNITED STATES ARMY CORP OF ENGINEERS' CHICAGO OFFICE DATED JANUARY 5, 1961 WHEREIN IT WAS STATED,"YOU ARE ADVISED THAT THE MERE FACT THAT THERE HAS BEEN A PROTEST FILED IN CONNECTION WITH THE AWARD OF THIS CONTRACT TO YOUR FIRM IN NO WAY RELIEVES YOU OF YOUR OBLIGATION TO CONTINUE WITH THE PERFORMANCE OF THIS CONTRACT AS AWARDED.' SOLOMON'S LETTER STATING THAT THEY WERE STILL SMALL BUSINESS FOLLOWED EIGHT DAYS LATER.

12. "OLIVER FURTHER STATES THERE CAN HARDLY BE A QUESTION OF DISPUTED FACT AS ALLEGED IN THE COMPTROLLER'S OPINION ON PAGE 12 IN REGARD TO AN AUGUST 12, 1960 PHONE CALL WHEN FOUR MONTHS LATER, I.E. JANUARY 13, 1961, SBA'S OFFICE OF SIZE STANDARDS RECONFIRMED STANDARD STEEL AS A SMALL BUSINESS.

13. "LAST WEEK, AT THE REQUEST OF MR. DEPEW, I INSPECTED THE STANDARD STEEL CORPORATION'S PLANT AND FIND THAT CANCELLATION OF THIS CONTRACT WILL RESULT IN A DIRECT MONETARY LOSS IN EXCESS OF $75,000.00 OF THE 50 UNITS CONTRACTED FOR $240,000.00 THREE ARE COMPLETE, 18 ARE 90 PERCENT COMPLETE, 15 ARE 70 PERCENT TO 80 PERCENT COMPLETE AND 14 ARE 60 PERCENT COMPLETE. ALL COMPONENTS HAVE BEEN PURCHASED, THE STEEL CUT, ENGINES RECEIVED IN STOCK, NOTHING IS NEEDED FOR COMPLETION EXCEPT THE APPLICATION OF LABOR. ACCORDING TO MR. OLIVER, ATTORNEY FOR STANDARD, LOSS OF IN EXCESS OF $75,000.00 IS UNCONSCIONABLE, AND IN EFFECT, ADMITS TO A CRIMINAL PENALTY PLACED ON A CIVIL CONTRACT SINCE THERE IS INNUENDO THAT MR. HARL DAY, PRESIDENT OF STANDARD STEEL, INDUCED THE UNITED STATES TO CONTRACT BY FRADULENT REPRESENTATION. IT IS APPARENT, ACCORDING TO OLIVER, THAT SOLOMON'S LETTER OF JANUARY 13, 1961 REAFFIRMING DEPUTY ADMINISTRATOR HIPKINS' DECISION OF NOVEMBER 30, 1960, COUPLED WITH THE CORP OF ENGINEERS ORDER OF JANUARY 5, 1961 COMMANDING HIM TO PERFORM HAS PLACED THIS CONTRACT AT THE POINT OF NO RETURN.

14. "I TRUST I HAVE COMMUNICATED THE GIST OF MR. OLIVER'S CONTENTIONS ACCURATELY AND IT WAS MY UNDERSTANDING THAT HE IS COMING TO WASHINGTON IN THE NEAR FUTURE IN AN ATTEMPT TO SAVE HIS CLIENT THIS MONETARY LOSS.'

IT SHOULD BE NOTED AT THE OUTSET THAT OUR DECISION OF AUGUST 1 WAS NOT PREDICATED UPON AN ASSUMPTION THAT THE QUESTION CONCERNING THE SIZE STATUS OF STANDARD STEEL WORKS WAS RAISED IN CONNECTION WITH THE PROCUREMENT IN ISSUE. WE WERE AWARE THAT THE REQUEST FOR A SIZE DETERMINATION OF STANDARD WAS MADE ON JUNE 9, 1960, AND THE SBA REPORT DATED JULY 7, 1961, PARAGRAPH 1, SO STATES. THE SECOND PARAGRAPH OF THE AUGUST 1 DECISION NOTES THAT THE INVITATION FOR BIDS WAS ISSUED ON JULY 18, 1960, WHICH IS MORE THAN A MONTH LATER THAN THE JUNE 9 REQUEST FOR A SIZE DETERMINATION ON STANDARD. WE DID NOT THINK, NOR DO WE NOW, THAT THE FACT THAT THE REQUEST FOR A SIZE DETERMINATION WAS NOT MADE IN CONNECTION WITH THE PROCUREMENT IN ISSUE, OR THAT STANDARD WAS NOT BIDDING ON ANY SMALL- BUSINESS CONTRACTS AT THAT TIME, SHOULD BE CONSIDERED RELEVANT TO ONE OF THE PRINCIPAL ISSUES INVOLVED IN OUR PRIOR DECISION. THAT ISSUE WAS WHETHER OR NOT, UNDER THE CIRCUMSTANCES PRESENTED, STANDARD STEEL KNEW THAT THE SMALL BUSINESS ADMINISTRATION WAS OF THE OPINION THAT STANDARD WAS NOT A SMALL BUSINESS CONCERN, AND FURTHER, IF STANDARD DID KNOW, WHETHER IT ACTED IN A REASONABLY PRUDENT MANNER IN SUBMITTING A BID AND CERTIFYING ITSELF AS A SMALL BUSINESS WITHOUT FIRST MAKING A FORMAL APPLICATION FOR A SMALL-BUSINESS CERTIFICATE. WE HELD THAT THE PRESUMPTION OF CORRECTNESS IN FAVOR OF AN ADMINISTRATIVE REPORT, UNEQUIVOCALLY STATING THAT THE PRESIDENT OF STANDARD WAS INFORMED BY TELEPHONE OF SBA'S VIEWS THAT STANDARD WAS NOT SMALL BUSINESS, WAS NOT OVERCOME ON THE BASIS OF THE RECORD BEFORE US. IN VIEW OF THIS AND, ALSO, BECAUSE SUFFICIENT TIME WAS AVAILABLE FOR MAKING A FORMAL APPLICATION FOR A SMALL-BUSINESS CERTIFICATE, WE THEN HELD THAT A BIDDER WHO SUBMITS A BID UNDER SUCH CIRCUMSTANCES SHOULD NOT HAVE HIS BID CONSIDERED ELIGIBLE FOR AWARD.

IN CONNECTION WITH PARAGRAPH 8 OF MR. SPARKS' LETTER, WHICH REFERS TO A STATEMENT MADE BY MR. DAY IN A LETTER OF AUGUST 10, 1961, WE QUOTE THE STATEMENT REFERRED TO:

"A GREAT DEAL OF EMPHASIS WAS PLACED, IN THE CONTROLLER GENERAL'S LETTER TO THE SECRETARY OF THE ARMY, ON A PENCIL NOTATION,"CALLED DAY 8/12.' THIS IS COVERED IN PARAGRAPH 5 ON PAGE 2 OF SAID LETTER. I WOULD LIKE TO POINT OUT THAT HAD A CLEAR CUT UNDERSTANDING BEEN MADE ON AUGUST 12, THEN WHY ON SEPTEMBER 8, IN MR. WOODWARD'S LETTER TO ME, WOULD HE SEND ADDITIONAL FORMS, SBA 355, FOR MY USE IN FILING A NEW APPLICATION FOR A SIZE DETERMINATION. THIS IS QUOTED FROM THE SECOND PARAGRAPH OF THIS LETTER. I CONTEND THAT THIS IS SUFFICIENT INDICATION THAT THE MATTER WAS NOT CLEARLY SETTLED BY A PHONE CONVERSATION OF AUGUST 12 WHICH I DOUBT THAT ANYONE COULD REMEMBER FOR A FULL YEAR.'

A MEMORANDUM DATED AUGUST 10, 1960, FROM MR. SAMUEL S. SOLOMON, THE SBA DIRECTOR OF THE OFFICE OF SMALL BUSINESS SIZE STANDARDS, TO MR. H. W. WOODWARD, THE ACTING CHIEF, PROCUREMENT AND TECHNICAL ASSISTANCE, KANSAS CITY REGIONAL OFFICE OF SBA, READS AS FOLLOWS: "THIS IS IN REPLY TO YOUR MEMORANDUM DATED JULY 15, 1960 IN WHICH YOU ASK WHETHER SUBJECT COMPANY IS AFFILIATED WITH CERTAIN INSURANCE COMPANIES WHICH OWN STOCK OF SAID COMPANY.

"THE FILE INDICATES THAT THE ENTIRE CAPITAL STOCK OF SUBJECT COMPANY IS OWNED BY FIVE INSURANCE COMPANIES. ONE OF THESE COMPANIES, RESERVE LIFE INSURANCE COMPANY OF DALLAS, OWNS 4/7THS OF THE STOCK. WHILE THE NAMES OF THE OFFICERS AND DIRECTORS ARE LISTED, THERE IS NO INDICATION OF THEIR RELATIONSHIP WITH THE FIVE INSURANCE COMPANIES. YOU RECOMMENDED THAT BECAUSE THE INSURANCE COMPANIES PURCHASED THE STOCK AS AN INVESTMENT ONLY, AND NOT FOR MANAGEMENT CONTROL PURPOSES, THAT THEY SHOULD BE CLASSIFIED WITHIN THE EXCEPTION NOTED IN THE REGULATIONS EVEN THOUGH THEY ARE NOT REGISTERED UNDER THE INVESTMENT ACT OF 1940.

"THE FILE DOES NOT CONTAIN ANY INFORMATION, OTHER THAN THE REGIONAL OFFICE'S CONCLUSION, TO INDICATE THAT THE INSURANCE COMPANIES DO NOT EXERCISE THE RIGHTS USUALLY ACCOMPANYING OWNERSHIP OF THE CORPORATION; OR THAT THE OFFICERS AND DIRECTORS OF SUBJECT COMPANY ARE NOT NOMINEES OF THESE INSURANCE COMPANIES; OR IF THE INSURANCE COMPANIES DO NOT EXERCISE CONTROL, THAT THEY DO NOT HAVE THE POWER TO DO SO WHENEVER THEY CHOOSE. IN THE ABSENCE OF ANY EVIDENCE OF THESE FACTS, THERE IS NO ALTERNATIVE BUT TO ASSUME THAT BY VIRTUE OF THE OWNERSHIP OF THE CAPITAL STOCK OF STANDARD AND STEEL WORKS, INC., THE INSURANCE COMPANIES CONTROL OR HAVE THE POWER TO CONTROL SUBJECT COMPANY AND FIND THAT BY VIRTUE OF THE OWNERSHIP BY RESERVE LIFE INSURANCE COMPANY OF DALLAS OF 4/7THS OF THE CAPITAL STOCK, THE CORPORATION IS AFFILIATED WITH THE LATTER INSURANCE COMPANY.

"THE GENERAL COUNSEL CONCURS IN THIS OPINION. YOUR FILE IS RETURNED HEREWITH.'

APPEARING OVER THE DATE OF THIS MEMORANDUM IS THE WRITTEN NOTATION "WOODWARD" WITH A LINE RUNNING FROM THIS TO ANOTHER WRITTEN NOTATION "CALLED DAY 8/12.'

IN A MEMORANDUM DATED JUNE 20, 1961, FROM MR. C. L. MOYER TO MR. EUGENE DAVIDSON, OFFICE OF GENERAL COUNSEL, SBA IN WASHINGTON, D.C., IT WAS REPORTED THAT ON AUGUST 12, 1960, WHEN THE AUGUST 10, 1960, MEMORANDUM FROM MR. SOLOMON WAS RECEIVED, MR. DAY WAS CALLED AND ADVISED OF THE CONTENTS OF THE MEMORANDUM; THAT MR. DAY ADVISED HE WOULD BE AWAY UNTIL AFTER LABOR DAY BUT UPON HIS RETURN HE WANTED TO REVIEW THE CONTENTS OF THE MEMORANDUM TO DETERMINE WHAT FURTHER INFORMATION MIGHT BE REQUIRED AND WHETHER THEY COULD MEET THE REQUIREMENTS; AND THAT UPON MR. DAY'S RETURN DURING THE WEEK AFTER LABOR DAY MATERIAL WAS FORWARDED TO HIM FOR REVIEW ON SEPTEMBER 8, 1960. MR. MOYER FURTHER STATED WITH REGARD TO THESE COMMUNICATIONS TO MR. DAY THAT ,THIS IS MY BEST RECOLLECTION AS I HAVE NO WRITTEN CONFIRMATION.'

A LETTER DATED SEPTEMBER 8, 1960, FROM MR. H. W. WOODWARD TO MR. DAY READS AS FOLLOWS:

"CONFIRMING OUR TELEPHONE CONVERSATION, I AM ENCLOSING A COPY OF A MEMORANDUM FROM MR. SAMUEL S. SOLOMON, DIRECTOR OF OFFICE OF SMALL BUSINESS SIZE STANDARDS. IN THIS MEMO HE POINTS OUT SEVERAL AREAS WHICH INDICATE NO PROOF OF INDEPENDENT OWNERSHIP.

"I AM ALSO ENCLOSING ONE SET OF SBA FORM 355 FOR YOUR USE IN FILING A NEW APPLICATION FOR A SIZE DETERMINATION.

"IF YOU HAVE ANY FURTHER QUESTIONS, DO NOT HESITATE TO CALL ON US.'

IN CONNECTION WITH MR. SPARKS' STATEMENT THAT "THE PARTICULAR TELEPHONE CONVERSATION CANNOT BE IDENTIFIED * * *" IT WOULD SEEM THAT THIS TELEPHONE CONVERSATION IS REASONABLY IDENTIFIED BY THE AUGUST 10, 1960, MEMORANDUM FROM MR. SOLOMON TO MR. WOODWARD, QUOTED ABOVE, WITH ITS WRITTEN NOTATION "CALLED DAY 8/12.' ON THE BASIS OF THE ABOVE QUOTED LETTERS AND MEMORANDUMS, WE DO NOT FEEL THAT THE ACCEPTANCE OF SBA'S ADMINISTRATIVE REPORT IN OUR AUGUST 1 DECISION TO THE EFFECT THAT MR. DAY WAS ADVISED BY TELEPHONE ON AUGUST 12, 1960, THAT SBA DID NOT CONSIDER STANDARD STEEL WORKS SMALL BUSINESS WAS UNWARRANTED. IT IS DIFFICULT TO PERCEIVE WHAT OTHER PURPOSE MR. WOODWARD COULD HAVE HAD IN CALLING MR. DAY ON AUGUST 12, 1960, IN CONNECTION WITH THE AUGUST 10, 1960, MEMORANDUM FROM MR. SOLOMON EXCEPT TO ADVISE THAT THE OFFICE OF SMALL BUSINESS SIZE STANDARDS DID NOT CONSIDER STANDARD STEEL SMALL BUSINESS. THE AUGUST 10, 1960, MEMORANDUM WAS EXCLUSIVELY CONCERNED WITH THIS QUESTION AND EXPLICITLY ADVISED MR. WOODWARD THAT BY VIRTUE OF THE OWNERSHIP OF FOUR-SEVENTHS OF THE CAPITAL STOCK OF STANDARD STEEL WORKS, INC., BY RESERVE LIFE INSURANCE COMPANY OF DALLAS, STANDARD WAS AFFILIATED WITH THE INSURANCE COMPANY.

IN THIS CONNECTION, IT SHOULD BE NOTED THAT THE AUGUST 1, 1961, DECISION WAS NOT PROMISED UPON A HOLDING THAT THE INFORMAL TELEPHONE NOTIFICATION AS TO STANDARD'S SIZE CONSTITUTED A LEGAL ,CLEAR CUT" DETERMINATION BY SBA THAT STANDARD STEEL WAS, IN FACT, NOT SMALL BUSINESS PRIOR TO BID OPENING AND THE DECISION EXPRESSLY NOTES THIS. THE TELEPHONE NOTIFICATION WAS CITED FOR THE PURPOSE OF INDICATING THAT STANDARD WAS ON NOTICE THAT IT WAS, IN THE INFORMAL OPINION OF SBA, NOT SMALL BUSINESS. IN VIEW OF THIS THE DECISION STATED THAT IT WAS DIFFICULT TO UNDERSTAND HOW A REASONABLY PRUDENT BIDDER COULD, WITHOUT FIRST MAKING A FORMAL APPLICATION FOR A SMALL-BUSINESS CERTIFICATE, SELF-CERTIFY ITSELF AS A SMALL BUSINESS. ALSO TO BE NOTED IS THE FACT THAT THE DECISION OF AUGUST 1, 1960, DID NOT RELY SOLELY UPON THE TELEPHONE "INCIDENT" FOR ITS DETERMINATION THAT STANDARD HAD NOTICE OF SBA'S OPINION AS TO ITS SIZE. AS EARLY AS JULY 7, 1960, MR. DAY, IN A LETTER ADDRESSED TO THE SMALL BUSINESS ADMINISTRATION IN KANSAS CITY, AND WHICH ACCOMPANIED A COMPLETED SBA FORM 355, STATED THAT "YOU HAVE CONSISTENTLY RAISED THE QUESTION OF AFFILIATION * * *.'

IN PARAGRAPH 11 OF MR. SPARKS' MEMORANDUM IT IS STATED THAT IT IS INCONSISTENT FOR THE COMPTROLLER GENERAL TO MAKE A STATEMENT THAT STANDARD STEEL COULD NOT BE CLASSIFIED AS SMALL BUSINESS PRIOR TO THE SUBMISSION OF ITS BID ON AUGUST 16, 1960, WHEN THE FILE REVEALS THAT THE DIRECTOR OF THE OFFICE OF SMALL BUSINESS SIZE STANDARDS ON JANUARY 13, 1961, REITERATED THAT THERE HAD BEEN NO CHANGE IN THE DETERMINATION MADE BY DEPUTY ADMINISTRATOR HIPKINS ON NOVEMBER 30, 1960, THAT STANDARD STEEL WAS A SMALL BUSINESS FOR THE PURPOSE OF GOVERNMENT PROCUREMENT. WE CANNOT AGREE WITH THIS ANALYSIS OF THE SITUATION SINCE IT FAILS TO TAKE INTO ACCOUNT THE BASIS FOR THE DETERMINATION BY SBA ON NOVEMBER 30, 1960, THAT STANDARD WAS A SMALL BUSINESS. IT WILL BE RECALLED THAT THE FIRST FORMAL DETERMINATION BY SBA WAS MADE ON OCTOBER 28, 1960, WHEN IT WAS DETERMINED THAT STANDARD WAS NOT SMALL BUSINESS. THE BASIS FOR THIS FIRST DETERMINATION WAS STATED IN A COPY OF A MEMORANDUM DATED MARCH 7, 1961, SUBMITTED TO THIS OFFICE BY THE SBA AS FOLLOWS:

"1. ON OCTOBER 28, AFTER THE SIZE STATUS OF STANDARD STEEL WORKS, INC. HAD BEEN PROTECTED BY E. D. ETNYRE AND COMPANY, T. C. WEALE, ACTING DEPUTY ADMINISTRATOR, DETERMINED THAT STANDARD STEEL WAS NOT A SMALL BUSINESS CONCERN FOR THE PURPOSE OF GOVERNMENT PROCUREMENT. THE DETERMINATION WAS BASED ON THE FACT THAT (1) RESERVE LIFE INSURANCE COMPANY OF DALLAS, DALLAS, TEXAS, OWNED 57 PERCENT OF THE VOTING STOCK OF STANDARD STEEL WORKS, INC. AND, THEREFORE, CONTROLLED OR HAD THE POWER TO CONTROL IT AND SO WAS AFFILIATED WITH IT WITHIN THE MEANING OF SECTION 121.3-2 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION (24 F.R. 3491); AND (2) THE TOTAL AVERAGE EMPLOYMENT OF RESERVE LIFE INSURANCE COMPANY (OVER 3,500 EMPLOYEES) AND STANDARD STEEL WORKS, INC. (AND ITS SUBSIDIARY, AERO-TEST EQUIPMENT COMPANY) SUBSTANTIALLY EXCEEDED THE PUBLISHED PROCUREMENT SIZE STANDARD (500 EMPLOYEES) FOR MANUFACTURING CONCERNS (SEE SECTION 121.3-8 (A) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION (24 F.R. 3491) ).'

ON NOVEMBER 2, 1960, STANDARD STEEL ADVISED THE CONTRACTING OFFICE THAT IT WAS APPEALING THE OCTOBER 28 DETERMINATION BY SBA. UPON APPEAL THE DETERMINATION WAS CHANGED ON NOVEMBER 30, 1960, AND THE DEPUTY ADMINISTRATOR, SBA, WIRED THE CONTRACTING OFFICE THAT HE HAD DETERMINED THAT STANDARD MIGHT SELF-CERTIFY AS A SMALL BUSINESS FOR GOVERNMENT PROCUREMENT. HOWEVER, IT SHOULD BE NOTED THAT THE SECOND DETERMINATION OF NOVEMBER 30, 1960, WHICH REVERSED THE OCTOBER 28 DETERMINATION, WAS NOT PREDICATED UPON A FINDING THAT THE OCTOBER 28 DETERMINATION WAS BASED UPON AN ERRONEOUS CONCLUSION ON THE EXISTING FACTS. THE OCTOBER 28 DETERMINATION WAS REVERSED BECAUSE STANDARD HAD TAKEN AFFIRMATIVE ACTION IN THE FORM OF AN AMENDMENT TO ITS CHARTER AND A REALIGNMENT OF THE OWNERSHIP OF ITS VOTING STOCK SO THAT RESERVE LIFE INSURANCE COMPANY WAS NO LONGER CONSIDERED AS BEING IN A POSITION TO CONTROL STANDARD AND CONSEQUENTLY NO LONGER CONSIDERED AS AN AFFILIATE OF STANDARD. THUS THE NOVEMBER 30 DETERMINATION WAS NOT BASED UPON A FINDING THAT STANDARD WAS SMALL BUSINESS PRIOR TO AUGUST 16, 1960, THE DATE OF ITS BID SUBMISSION, BUT WAS BASED UPON A CHANGE IN THE OWNERSHIP OF STANDARD'S VOTING STOCK WHICH TOOK PLACE AFTER THE FIRST FORMAL DETERMINATION OF OCTOBER 28, 1960. IN THIS CONNECTION, SEE PARAGRAPH 11 OF THE JUNE 22, 1961, DETERMINATION BY THE SBA SIZE APPEALS BOARD, QUOTED IN OUR DECISION OF AUGUST 1, WHERE THE BOARD STATED THAT "THE SOLE PURPOSE OF THE ESTABLISHMENT OF THE TWO CLASSES OF STOCK AND THE REALIGNMENT OF THE STOCK OF STANDARD STEEL WORKS, INC. WAS TO OVERCOME THE FINDING MADE BY THE SMALL BUSINESS ADMINISTRATION THAT STANDARD STEEL WORKS, INC. AND RESERVE LIFE INSURANCE COMPANY ARE AFFILIATED * * *.' THE SIZE APPEALS BOARD ON JUNE 22, 1961, IN SUSTAINING THE APPEAL OF ETNYRE AND HOLDING THAT STANDARD DID NOT QUALIFY AS A SMALL-BUSINESS CONCERN FOR GOVERNMENT PROCUREMENT, FOUND THAT THE REALIGNMENT OF STOCK IN STANDARD "WAS A CHANGE IN FORM ONLY AND NOT ONE OF SUBSTANCE.'

ASIDE FROM THE ABOVE ANALYSIS OF THE RECORD BEFORE THIS OFFICE, IT MUST BE KEPT IN MIND THAT OUR DECISION OF AUGUST 1, 1961, WAS BASED NOT ONLY UPON THE CIRCUMSTANCES DISCUSSED ABOVE BUT ALSO ON THE ADDITIONAL BASIS WHICH WAS STATED IN OUR DECISION AS FOLLOWS:

"* * * ORDINARILY OUR OFFICE HAS HELD THAT THE FINAL DETERMINATION OF THE ELIGIBILITY OF A BIDDER AS A SMALL BUSINESS CONCERN UNDER A SMALL-BUSINESS RESTRICTED INVITATION IS MADE AS OF THE DATE OF AWARD. SEE B-143630, OCTOBER 13, 1960. WE DO NOT FEEL, HOWEVER, THAT THIS GENERAL RULE PROPERLY SHOULD BE APPLIED TO PERMIT A LARGE BUSINESS BIDDER TO CERTIFY HIMSELF AS SMALL BUSINESS AND THEN TAKE AFFIRMATIVE ACTION AFTER OPENING OF BIDS AND BEFORE AWARD FOR THE SOLE PURPOSE OF MEETING THE CRITERIA ESTABLISHED FOR SMALL BUSINESS, THUS QUALIFYING HIS BID FOR CONSIDERATION. CF. B-145236, MARCH 29, 1961. ANY OTHER VIEW WOULD RESULT IN PLACING A LOW BIDDER OTHERWISE RESPONSIVE TO THE INVITATION IN THE POSITION OF HAVING A SECOND CHANCE AT THE AWARD AND WOULD GIVE THAT BIDDER AN UNDUE ADVANTAGE OVER OTHER BIDDERS. THIS, IN OUR OPINION, WOULD BE DESTRUCTIVE OF THE COMPETITIVE BIDDING PROCESS, EVEN THOUGH IT MAY BE LIMITED, AS IN THIS CASE, TO SMALL BUSINESS CONCERNS. IT SEEMS CLEAR ALSO THAT TO PERMIT SUCH A PRACTICE WOULD RESULT IN CIRCUMVENTION OF THE SMALL BUSINESS SET-ASIDE PROGRAM WHICH HAS AS ONE OF ITS STATUTORY PURPOSES THE REQUIREMENT THAT A FAIR PROPORTION OF GOVERNMENT CONTRACTS BE PLACED WITH SMALL BUSINESS CONCERNS. IN THE INSTANT CASE IT APPEARS FROM THE ABOVE QUOTED CORRESPONDENCE--- AND THE DETERMINATION OF JUNE 22, 1961, BY SBA SO STATES--- THAT THE CHANGE IN THE STOCK ALIGNMENT WAS FOR THE SOLE PURPOSE OF QUALIFYING STANDARD'S BID FOR CONSIDERATION.'

WITH REGARD TO THE QUESTION PRESENTED IN PARAGRAPH 10 OF MR. SPARKS' MEMORANDUM OF AUGUST 18, 1961, AS TO WHETHER AN INSURANCE COMPANY CAN BE CONSIDERED AN "AFFILIATE" UNDER SBA REGULATION 121.3-2 (A), THIS QUESTION IS ONE THAT IS PROPERLY WITHIN THE JURISDICTION OF THE SMALL BUSINESS ADMINISTRATION. SECTION 637 (B), TITLE 15, U.S.C. PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"/B) PROCUREMENT AND PROPERTY DISPOSAL POWERS; DETERMINATION OF SMALL- BUSINESS CONCERNS.

"IT SHALL ALSO BE THE DUTY OF THE ADMINISTRATION (SBA) AND IT IS EMPOWERED, WHENEVER IT DETERMINES SUCH ACTION IS NECESSARY---

"/6) TO DETERMINE WITHIN ANY INDUSTRY THE CONCERNS, FIRMS, PERSONS, CORPORATIONS, PARTNERSHIPS, COOPERATIVES, OR OTHER BUSINESS ENTERPRISES WHICH ARE TO BE DESIGNATED ,SMALL-BUSINESS CONCERNS" FOR THE PURPOSE OF EFFECTUATING THE PROVISIONS OF THIS CHAPTER. * * * OFFICES OF THE GOVERNMENT HAVING PROCUREMENT OR LENDING POWERS, OR ENGAGING IN THE DISPOSAL OF FEDERAL PROPERTY OR ALLOCATING MATERIALS OR SUPPLIES, OR PROMULGATING REGULATIONS AFFECTING THE DISTRIBUTION OF MATERIALS OR SUPPLIES, SHALL ACCEPT AS CONCLUSIVE THE ADMINISTRATION'S DETERMINATION AS TO WHICH ENTERPRISES ARE TO BE DESIGNATED "SMALL BUSINESS CONCERNS," AS AUTHORIZED AND DIRECTED UNDER THIS PARAGRAPH.'

SEE, ALSO, 15 U.S.C. 634 (B) (6) WHICH EMPOWERS THE ADMINISTRATOR OF SBA TO MAKE SUCH RULES AND REGULATIONS AS HE DEEMS NECESSARY TO CARRY OUT THE AUTHORITY VESTED IN HIM BY THE SMALL BUSINESS ACT, AND 15 U.S.C. 632 WHICH DEALS WITH THE ADMINISTRATOR'S POWERS IN CONNECTION WITH MAKING A DETAILED DEFINITION OF SMALL BUSINESS. IT APPEARS, THEREFORE, THAT THE QUESTION OF WHETHER AN INSURANCE COMPANY CAN BE CONSIDERED AN "AFFILIATE" UNDER SBA REGULATION 121.3-2 (A) IS ONE THAT SHOULD HAVE BEEN, IF IT WAS NOT, PRESENTED TO THE SMALL BUSINESS ADMINISTRATION WHEN THE DETERMINATIONS, HERETOFORE DISCUSSED, WERE BEFORE THAT AGENCY FOR CONSIDERATION. ALTHOUGH WE ARE NOT AWARE OF THE EXTENT TO WHICH THIS POINT WAS ARGUED BEFORE SBA, THE MEMORANDUM DATED AUGUST 10, 1960, FROM MR. SOLOMON TO MR. WOODWARD INDICATES THAT THIS QUESTION WAS PROBABLY CONSIDERED BY SBA TO SOME EXTENT AT THAT TIME. IN CONNECTION WITH PARAGRAPH 13 OF THE SPARKS' MEMORANDUM, OUR DECISION OF AUGUST 1 RECOGNIZED THAT HARDSHIP WOULD RESULT IN CANCELLATION OF THE AWARD PREVIOUSLY MADE TO STANDARD. AT THE TIME THE DECISION WAS RENDERED AN INFORMAL INQUIRY WAS MADE TO ASCERTAIN THE CURRENT STATUTE OF CONTRACT PERFORMANCE BY STANDARD. WE WERE INFORMED THAT THE FIRST INSTALLMENT DELIVERY OF 10 DISTRIBUTORS, AS WELL AS THE 2 PROTOTYPES PRODUCED UNDER THE CONTRACT, WOULD BE READY FOR DELIVERY ON SEPTEMBER 11, 1961. IN ORDER TO MINIMIZE THE EXPENSES OF STANDARD UNDER THE CONTRACT, WE AUTHORIZED THE DEPARTMENT OF THE ARMY, FOR PRACTICAL CONSIDERATIONS, TO ACCEPT DELIVERY OF THE 10 UNITS AND 2 PROTOTYPES, TO BE PAID FOR ON A QUANTUM VALEBAT BASIS. IN DOING SO, WE DID NOT RECOGNIZE ANY LEGAL DUTY ON THE PART OF THE GOVERNMENT TO ACCEPT ANY SPECIFIC NUMBER OF UNITS, OR ANY UNITS AT ALL. AS WE STATED IN 40 COMP. GEN. 447, 450- 451:

"THE ISSUE NOW PRESENTED IS THE MEASURE OF THE WALLACE FIRM'S ENTITLEMENT FOR WORK PERFORMED ON THE 60 UNITS UNCOMPLETED AND UNDELIVERED AT THE TIME OF CANCELLATION. AS TO THE OTHER 18 UNITS, WHICH WERE ACCEPTED BY THE GOVERNMENT, THE RULE FOLLOWED BY OUR OFFICE AND THE FEDERAL COURTS IS THAT PAYMENT IS AUTHORIZED ON A QUANTUM MERUIT OR QUANTUM VALEBAT BASIS FOR BENEFITS RECEIVED PRIOR TO THE DETERMINATION OF CONTRACT INVALIDITY. CLARK V. UNITED STATES (1877), 95 U.S. 539; SOUTH BOSTON IRON CO. V. UNITED STATES (1886), 118 U.S. 37; SOLOMON V. UNITED STATES (1873), 86 U.S. 17; 154 ALR 356; 110 ALR 154; 84 ALR 937; 38 COMP. GEN. 368; 37 COMP. GEN. 330; 17 COMP. GEN. 312.

"IT SHOULD BE NOTED, HOWEVER, THAT THERE EXISTS STRONG PRECEDENT FOR HOLDING THAT A CONTRACT WITHIN THE AUTHORITY OF THE PUBLIC BODY, WHICH IS INVALID BECAUSE ENTERED INTO WITHOUT FOLLOWING THE REQUIRED PROCEDURES, GIVES RISE TO NO ENTITLEMENT TO PAYMENT OTHER THAN THAT ALREADY RECEIVED PRIOR TO THE DETERMINATION OF INVALIDITY, NOTWITHSTANDING THE GOOD FAITH OF THE PARTIES. 43 AM.JUR. PUBLIC WORKS AND CONTRACTS, SEC. 88; ROENHELD V. CITY OF CHICAGO (ILL. 1907), 83 N.E. 291; SHULSE V. CITY OF MAYVILLE (WISC. 1937), 271 N.W. 643; FEDERAL PAVING CORP. V. CITY OF WAUWATOSA (WISC. 1939), 286 N.W. 546; TOBIN V. TOWN COUNCIL (WYO. 1933), 17 P.2D 666; JOHNSON COUNTY SAVINGS BANK V. CITY OF CRESTON (IOWA 1930), 231 N.W. 705; 10 MCQUILLIN ON MUNICIPAL CORPORATIONS, 3D ED., SECS. 29.02, 29.26, 29.41; LAYNE WESTERN CO. V. BUCHANAN COUNTY, MO. (8TH CIR. 1936), 85 F.2D 43; SEE, ALSO, MILLER V. MCKINNON (CALIF. 1942), 124 P.2D 34. IN 10 MCQUILLIN ON MUNICIPAL CORPORATIONS, SEC. 29.02, IT IS STATED:

" "THE DOCTRINE WHICH SEEMS TO HARMONIZE WITH OUR GOVERNMENTAL AND LEGAL SYSTEM, WHICH APPEARS TO BE SUPPORTED BY REASON AND WHICH, THEREFORE, SHOULD PREVAIL MAY BE THUS STATED BRIEFLY: IF THE CHARTER OR THE STATUTE APPLICABLE REQUIRES CERTAIN STEPS TO BE TAKEN BEFORE MAKING A CONTRACT, AND IT IS MANDATORY IN TERMS, A CONTRACT NOT MADE IN CONFORMITY THEREWITH IS INVALID * * * AND USUALLY THERE IS NO IMPLIED LIABILITY FOR THE REASONABLE VALUE OF THE PROPERTY OR SERVICES OF WHICH THE MUNICIPALITY HAS HAD THE BENEFIT.'

"WHERE THE RIGHT TO PAYMENT ON A QUANTUM VALEBAT OR QUANTUM MERUIT BASIS IS RECOGNIZED, IT IS PREDICATED ON THE THEORY THAT IT WOULD BE UNFAIR FOR ONE PARTY TO HAVE THE BENEFIT OF THE LABOR OF ANOTHER WITHOUT RECOMPENSE, AND RECOVERY IS LIMITED "TO SUCH SUMS AS WILL REASONABLY COMPENSATE THE PARTY WHOSE SERVICES OR PROPERTY HAVE BEEN DEVOTED TO THE ADVANTAGE OF THE OTHER.' GEE V. CITY OF SUTTON (NEBR. 1948), 31 N.W.2D 747. SEE ALSO HUDSON CITY CONTRACT CO. V. JERSEY CITY INCINERATOR AUTHORITY, SUPRA, IN WHICH THE MEASURE OF RECOVERY WAS HELD TO BE THE VALUE OF THE SERVICES ACTUALLY RENDERED NOT TO EXCEED COSTS, WITHOUT PROFIT ON THE BASIS THAT THE COMMUNITY WOULD OTHERWISE BE UNJUSTLY ENRICHED. SEE ALSO CEMOWELL CO. V. CITY OF PHOENIX (1955), 216 F.2D 928, WHERE IT WAS HELD THAT THE CITY SHOULD NOT BE ALLOWED TO RETAIN THE BENEFITS RECEIVED UNDER THE INVALID CONTRACT WITHOUT PAYING A REASONABLE VALUE FOR THEM. AND IN SALOMON V. UNITED STATES, SUPRA, IT WAS HELD THAT THE GOVERNMENT IS LIABLE ON QUANTUM VALEBAT FOR GOODS RECEIVED AND ACCEPTED UNDER AN INVALID CONTRACT.

"IT WILL BE NOTED THAT PAYMENT ON QUANTUM MERUIT OR QUANTUM VALEBAT IS AUTHORIZED ON THE BASIS OF THE VALUE RECEIVED BY THE GOVERNMENT AGENCY. THE WEIGHT OF JUDICIAL AUTHORITY PROVIDES NO PRECEDENT FOR PAYMENT OF COSTS INCURRED BY THE CONTRACTOR WHICH DID NOT RESULT IN A BENEFIT TO OR IN THE RECEIPT OF VALUABLE GOODS OR SERVICES BY THE GOVERNMENTAL UNIT INVOLVED. IN NEW YORK MAIL AND NEWSPAPER TRANS. CO. V. UNITED STATES (1957), 139 CT.CL. 751, THE MAJORITY OPINION STATED THAT, RATHER THAN PROVIDING FOR PAYMENT ON A STRICTLY QUANTUM MERUIT BASIS, THE PARTIES SHOULD BE PLACED SUBSTANTIALLY IN THE POSITION THEY WOULD HAVE BEEN IN HAD THERE BEEN NO ATTEMPTED CONTRACT. WHILE THE MATTER IS NOT ENTIRELY CLEAR, IT MAY BE THAT THE JUDGMENT AWARDED EXCEEDED THE AMOUNT WHICH WOULD HAVE BEEN PAID UNDER QUANTUM MERUIT. HOWEVER, EVEN ACCEPTING THE RULE IN THAT CASE (OVERLOOKING THE PRECEDENTS TO THE CONTRARY AND THE DICTUM IN THE STRONG DISSENT UNDER WHICH NO PAYMENT WOULD HAVE BEEN AWARDED THE CONTRACTOR HAD THERE BEEN NO VALID CONTRACT) IT DOES NOT APPEAR THAT THE PREAWARD POSITION OF THE PARTIES COULD ANY MORE BE RESTORED IF THE UNITED STATES WERE TO PAY THE CLAIM THAN IF THE PARTIES WERE LEFT IN STATUS QUO.

"IN ANY CASE, WE THINK THE MATTER HAS BEEN SPECIFICALLY DECIDED BY THE SUPREME COURT IN THE RECENT CASE OF UNITED STATES V. MISSISSIPPI VALLEY GENERATING CO., U.S.SUP.CT., JANUARY 9, 1961, WHERE IT WAS STATED (FOOTNOTE NO. 22):

" "THE RESPONDENT ALSO CONTENDS THAT EVEN IF THE CONTRACT IS NOT ENFORCEABLE, A RECOVERY QUANTUM VALEBAT SHOULD BE DECREED. HOWEVER, SUCH A REMEDY IS APPROPRIATE ONLY WHERE ONE PARTY TO A TRANSACTION HAS RECEIVED AND RETAINED TANGIBLE BENEFITS FROM THE OTHER PARTY. SEE CROCKER V. UNITED STATES, 240 U.S. 74, 81-82. SINCE THE GOVERNMENT HAS RECEIVED NOTHING FROM THE RESPONDENT, NO RECOVERY QUANTUM VALEBAT IS IN ORDER.'"

IN ACCORDANCE WITH THE FOREGOING, THERE IS NO LEGAL BASIS UPON WHICH WE MAY GIVE FAVORABLE CONSIDERATION TO THE SUGGESTION, MADE INFORMALLY BY MR. OLIVER AT A MEETING IN THIS OFFICE ON AUGUST 22, 1961, THAT THE GOVERNMENT ACCEPT ADDITIONAL UNITS OF DISTRIBUTORS FROM STANDARD IN ORDER TO RELIEVE STANDARD'S LOSSES.

ACCORDINGLY, WE MUST CONCLUDE THAT OUR DECISION B-144621, AUGUST 1, 1961, IS CORRECT AND IT IS HEREBY SUSTAINED.