B-164735, OCT. 4, 1968

B-164735, OCT. 4, 1968

TO WESTRIC BATTERY COMPANY:

FURTHER REFERENCE IS MADE TO YOUR TELEGRAM OF JUNE 28, 1968, AND SUBSEQUENT CORRESPONDENCE, PROTESTING THE CANCELLATION OF INVITATION FOR BIDS NO. DAAE07-68-B-1713, ISSUED BY THE ARMY-TANK AUTOMOTIVE COMMAND, OR AWARD TO ANY OTHER FIRM UNDER SUCH INVITATION.

THE INVITATION WAS ISSUED AS A 100 - PERCENT SET-ASIDE FOR SMALL BUSINESS ON MAY 13, 1968, AND WAS OPENED ON JUNE 4, 1968. BIDS WERE SOLICITED FROM 19 SMALL BUSINESS FIRMS INCLUDING THE PRIOR CONTRACTOR, SUN BATTERY COMPANY. ONLY THREE BIDS WERE RECEIVED, EXCLUDING ONE LATE BID. THE RESPONSIVE BIDDERS AND THEIR PRICES ARE AS FOLLOWS:

ITEMS 1-AND-2 ITEMS 3-AND-4 TOTAL SUN BATTERY COMPANY $22.94 $24.78 $662,657.20 WESTRIC BATTERY COMPANY $26.82 $28.97 $774,721.34 UNIVERSAL BATTERY COMPANY $27.43 $29.62 $792,266.98 THE INVITATION COVERS THE GOVERNMENT'S REQUIREMENTS FOR 27,852 STORAGE BATTERIES, TYPE 4D, FSN:6140- 184-3400. DURING THE COURSE OF PLANNING THIS PROCUREMENT REVIEW WAS MADE JOINTLY WITH THE COMMAND'S SMALL BUSINESS SPECIALIST AND IT WAS DETERMINED THAT THE ENTIRE AMOUNT OF THE PROCUREMENT SHOULD BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION. THIS DETERMINATION WAS BASED ON A REASONABLE EXPECTATION THAT BIDS WOULD BE OBTAINED FROM A SUFFICIENT NUMBER OF SMALL BUSINESS CONCERNS SO THAT AWARDS WOULD BE MADE AT REASONABLE PRICES.

IMMEDIATELY AFTER BID OPENING, ORAL PROTESTS WERE RECEIVED FROM YOUR FIRM AND UNIVERSAL BATTERY, BASED UPON THE FACT THAT SUN BATTERY WAS NOW AN AFFILIATE OF INSTRUMENTS SYSTEMS CORPORATION, A LARGE BUSINESS, AND THEREFORE DID NOT QUALIFY AS A SMALL BUSINESS CONCERN UNDER THE SIC CODE 3691 OF 500 EMPLOYEES. THE CONTRACTING OFFICER WAS NOT AWARE OF THE CHANGE IN SMALL BUSINESS STATUS OF ONE OF THE AGENCY'S PRIMARY SUPPLIERS, SUN BATTERY CO., AT THE TIME HE DETERMINED TO SET THIS ITEM ASIDE FOR SMALL BUSINESS CONCERNS. AFTER BEING INFORMED OF SUN'S CHANGE IN SIZE, HE FELT THAT THERE WAS NO ASSURANCE THAT THIS ITEM CAN BE OBTAINED AT REASONABLE PRICES FROM SMALL BUSINESS AS REQUIRED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) 1 706.5. THEREFORE, IT WAS DETERMINED TO WITHDRAW THE SET-ASIDE AND CANCEL THE INVITATION. COMPARISON OF THE PRICES RECEIVED FROM SMALL BUSINESS FIRMS IN RECENT PROCUREMENTS WITH THOSE SUBMITTED ON THE PRESENT INVITATION SUPPORTS THE CONTRACTING OFFICER'S DETERMINATION THAT AWARD THEREON WOULD BE AT AN UNREASONABLE PRICE, BEING $122,064.14 HIGHER THAN THE LOW NONRESPONSIVE BID OF SUN BATTERY (DISCOVERED TO BE LARGE BUSINESS AFTER OPENING) AND 16 PERCENT HIGHER THAN THE PREVIOUS PROCUREMENT PRICE PAID BY THE PROCURING AGENCY. THE SMALL BUSINESS SPECIALIST HAS CONCURRED IN THE ACTION OF WITHDRAWAL. ITIS PROPOSED TO CANCEL THE INVITATION FOR BIDS AND TO RESOLICIT BIDS ON A 50 - PERCENT SMALL BUSINESS SET-ASIDE BASIS AS IN THE BEST INTEREST OF THE GOVERNMENT.

YOU PROTEST THE CANCELLATION OF THE INVITATION AND WITHDRAWAL OF THE 100 - PERCENT SET-ASIDE ON THE GROUND THAT THE SUN BATTERY BID SHOULD NEVER HAVE BEEN OPENED, AS IT WAS DETERMINED TO BE LARGE BUSINESS ON MAY 22, 1968, IN CONNECTION WITH ANOTHER PROCUREMENT, WHICH WAS LESS THAN 2 WEEKS BEFORE THE BID OPENING DATE OF THE PRESENT PROCUREMENT. YOU STATE FURTHER, IN EFFECT, THAT HAVING BEEN OPENED IT SHOULD NOT BE ALLOWED TO BECOME THE BASIS OF COMPARISON IN DETERMINING THE REASONABLENESS OF THE BIDS RECEIVED FROM SMALL BUSINESSES AND THAT IT WAS IRRELEVANT TO THIS PROCUREMENT. YOU SUBMIT PRICING DATA WHICH YOU STATE REFLECTS UNMISTAKABLY THAT THE LOW RESPONSIVE BID CONSTITUTED A FAIR AND REASONABLE CURRENT MARKET PRICE AT THE TIME OF BID OPENING AND STATE FURTHER THAT THIS IS THE ONLY REAL ISSUE INVOLVED IN THIS MATTER. OTHER BASES OF YOUR PROTEST ARE THAT LARGE BUSINESSES INDULGE IN THE PRACTICE OF SUBMITTING LOW BIDS THEY KNOW CANNOT BE ACCEPTED FOR THE SPECIFIC PURPOSE OF DISCREDITING LEGITIMATE BIDS AND THAT TO ALLOW THE ILLEGAL SUN BID TO BE CONSIDERED WILL ONLY VIOLATE THE COMPETITIVE BIDDING SYSTEM AND DESTROY THE SMALL BUSINESS SET-ASIDE PROGRAM.

REGARDING THE PROPRIETY OF THE DECISION OF THE CONTRACTING OFFICER TO REJECT ALL BIDS UNDER THE INVITATION, PARAGRAPH 1-706.5 (A) (1) OF ASPR PROVIDES AS FOLLOWS:

"/A) (1) SUBJECT TO ANY APPLICABLE PREFERENCE FOR LABOR SURPLUS AREA SET- ASIDES AS PROVIDED IN 1-803 (A) (II), THE ENTIRE AMOUNT OF AN INDIVIDUAL PROCUREMENT OR A CLASS OF PROCUREMENTS, INCLUDING BUT NOT LIMITED TO CONTRACTS FOR MAINTENANCE, REPAIR, AND CONSTRUCTION, SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION (SEE 1-701.1) IF THE CONTRACTING OFFICER DETERMINES THAT THERE IS REASONABLE EXPECTATION THAT BIDS OR PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES. TOTAL SET-ASIDES SHALL NOT BE MADE UNLESS SUCH A REASONABLE EXPECTATION EXISTS. (BUT SEE 1-706.6 AS TO PARTIAL SET-ASIDES.) ALTHOUGH PAST PROCUREMENT HISTORY OF THE ITEM OR SIMILAR ITEMS IS ALWAYS IMPORTANT, IT IS NOT THE ONLY FACTOR WHICH SHOULD BE CONSIDERED IN DETERMINING WHETHER A REASONABLE EXPECTATION EXISTS.'

IN ADDITION, ASPR 1-706.3 (A) AUTHORIZES WITHDRAWAL OF SMALL BUSINESS SET -ASIDES AS FOLLOWS:

"/A) * * * IF, PRIOR TO AWARD OF A CONTRACT INVOLVING AN INDIVIDUAL OR CLASS SET-ASIDE, THE CONTRACTING OFFICER CONSIDERS THAT PROCUREMENT OF THE SET-ASIDE FROM A SMALL BUSINESS CONCERN WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST (E.G., BECAUSE OF UNREASONABLE PRICE), HE MAY WITHDRAW A UNILATERAL OR JOINT SET-ASIDE DETERMINATION BY GIVING WRITTEN NOTICE TO THE SMALL BUSINESS SPECIALIST OR THE SBA REPRESENTATIVE, AS APPROPRIATE, STATING THE REASONS FOR THE WITHDRAWAL. IN A SIMILAR MANNER, A UNILATERAL OR JOINT CLASS SET-ASIDE MAY BE MODIFIED TO WITHDRAW ONE OR MORE INDIVIDUAL PROCUREMENTS.'

WHILE THERE CAN BE NO DOUBT THAT THE PROVISIONS OF THE SMALL BUSINESS ACT AUTHORIZE THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS AT PRICES WHICH MAY BE HIGHER THAN THOSE OBTAINABLE BY UNRESTRICTED COMPETITION, WE ARE AWARE OF NO VALID BASIS UPON WHICH IT MAY BE CONCLUDED THAT THIS ACT WAS INTENDED TO REQUIRE THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS AT PRICES CONSIDERED UNREASONABLE BY THE CONTRACTING AGENCY, OR THAT THE CONTRACTING AGENCY WOULD BE PROHIBITED FROM WITHDRAWING A SET-ASIDE DETERMINATION WHERE THE BIDS SUBMITTED BY SMALL BUSINESS CONCERNS WERE CONSIDERED UNREASONABLE. THE REGULATIONS QUOTED ABOVE, PERMITTING SET- ASIDE ACTION ONLY WHERE THERE IS A REASONABLE EXPECTATION OF SUFFICIENT COMPETITION TO PRODUCE REASONABLE PRICES AND PROVIDING FOR WITHDRAWAL OF THE SET-ASIDE WHERE THAT EXPECTATION IS NOT REALIZED, PROPERLY PERMIT THE WITHDRAWAL OF A SET-ASIDE, BASED UPON A VALID DETERMINATION THAT BID PRICES RECEIVED FROM SMALL BUSINESS CONCERNS ARE UNREASONABLE. B-149889, NOVEMBER 2, 1962.

UNDER THE STATED TERMS OF THE INVITATION BIDS FROM LARGE BUSINESS CONCERNS WERE TO BE CONSIDERED AS NONRESPONSIVE AND WERE TO BE REJECTED AND NOT CONSIDERED FOR AWARD. ASPR 1-706.5 (C). SEE PAGE G-3 OF THE INVITATION. SUCH BIDS, WHILE NONRESPONSIVE, ARE REGARDED AS COURTESY BIDS AND, AS SUCH, APPLICABLE REGULATIONS HAVE IN THE PAST AFFIRMATIVELY PROVIDED FOR THEIR RECORDATION FOR USE IN DETERMINING THE PROPRIETY OF EXECUTING DETERMINATIONS IN CONNECTION WITH FUTURE PROCUREMENT OF THE SAME OR SIMILAR ITEMS. IN THE PRESENT INSTANCE, WHETHER SUN BATTERY'S BID WAS PROPERLY FOR CONSIDERATION IN DETERMINING TO WITHDRAW THE SET-ASIDE IS NOT CONTROLLING SINCE THERE WAS A VALID REASON OTHERWISE FOR THE CANCELLATION, NAMELY, THE SUBSTANTIAL DIFFERENCE BETWEEN THE LOW RESPONSIVE BID AND THE PRICE PAID FOR THE MATERIAL UNDER A PRIOR PROCUREMENT. 37 COMP. GEN. 147.

YOU HAVE SUBMITTED PRICING DATA TENDING TO SHOW THAT THE PRICES OF THE TWO ELIGIBLE SMALL BUSINESS BIDDERS "WERE COMPETITIVE AND WHOLLY CONSISTENT WITH THE RECENT NATIONAL PROCUREMENT HISTORY OF THE ITEM.' STATED IN THE ADMINISTRATIVE REPORT, A COPY OF WHICH HAS BEEN FURNISHED TO YOU AND TO WHICH YOU HAVE DIRECTED ARGUMENTS IN REBUTTAL, THE CONTRACTING OFFICER HAD A REASONABLE EXPECTATION THAT BIDS WOULD BE OBTAINED FROM A SUFFICIENT NUMBER OF SMALL BUSINESS CONCERNS SO THAT AWARD COULD BE MADE AT REASONABLE PRICES. THE RECORDS OF THE PROCURING AGENCY ARE REPORTED TO SHOW THAT THE BID PRICES OF THE TWO SMALL BUSINESS CONCERNS ARE NOT IN LINE WITH PREVIOUS AWARDS. WHILE YOU HAVE CITED THREE EXAMPLES OF RECENT "NATIONAL" PROCUREMENT HISTORIES OF THE ITEM, THE ADMINISTRATIVE REPORT REVEALS THAT OF THESE ONE WAS CANCELLED AND NO AWARD WAS MADE. THE OTHER TWO WERE FOR QUANTITIES OF 2,109 EACH AND 3,174 EACH, RESPECTIVELY. IT IS THE ADMINISTRATIVE VIEW, AND WE THINK A REASONABLE ONE, THAT NEITHER OF THE PROCUREMENT PRICES FOR THESE QUANTITIES CAN BE MEANINGFULLY COMPARED WITH THE QUANTITY OF 27,852 EACH OF THE PRESENT PROCUREMENT.

WE HAVE NO DOUBT THAT THE PROFIT FACTOR IN YOUR PRICE IS REASONABLE. HOWEVER, THE PROFIT FACTOR IN YOUR PRICE WOULD NOT BY ITSELF ESTABLISH THAT THE GOVERNMENT WAS OBTAINING THE ITEMS AT A REASONABLE PRICE. IT IS OUR VIEW THAT THE CONTRACTING OFFICER PROPERLY COMPARED THE PRICE IN YOUR BID WITH PRICES OBTAINED IN PRIOR PROCUREMENTS IN MAKING HIS DETERMINATION REGARDING THE REASONABLENESS OF YOUR PRICE AND THE CANCELLATION AND REISSURANCE OF THE PROCUREMENT ON A 50 PERCENT SET-ASIDE BASIS. THIS COMPARISON CLEARLY INDICATED THAT THE PREMIUM WHICH THE GOVERNMENT WOULD HAVE HAD TO PAY FOR A 100 PERCENT AWARD TO A SMALL BUSINESS FIRM UNDER THE COMPLETELY RESTRICTED INVITATION WOULD HAVE BEEN SO SUBSTANTIAL THAT IT WAS INCUMBENT UPON THE CONTRACTING OFFICER IN THE PROPER DISCHARGE OF HIS DUTIES TO MAKE A DETERMINATION THAT AN AWARD IN THE CIRCUMSTANCES WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST. THEREFORE, WE FIND NO BASIS FOR QUESTIONING THE ACTIONS TAKEN BY THE PROCURING ACTIVITY. B 151741, JULY 30, 1963. THE DECISIONS CITED BY YOU TO SUPPORT YOUR PROTEST MAY BE DISTINGUISHED INASMUCH AS THEY WERE ADDRESSED TO SITUATIONS WHEREIN SET- ASIDES FOR SMALL BUSINESS WERE DEEMED TO BE PROPER.

WE HAVE HELD THAT INVITATIONS SHOULD BE CANCELLED ONLY FOR THE MOST COGENT REASONS AFTER OPENING AND DISCLOSURE OF THE BIDDER'S QUOTATIONS BECAUSE OF THE OBVIOUS PREJUDICIAL EFFECTS FLOWING THEREFROM. HOWEVER, WE HAVE INTERPOSED NO OBJECTION TO SUCH ACTION WHERE IT HAS BEEN ESTABLISHED THAT EVEN THE BID MOST ADVANTAGEOUS TO THE GOVERNMENT IS UNREASONABLE AND THEREFORE NOT IN THE GOVERNMENT'S INTEREST TO ACCEPT.

IN VIEW OF THE ABOVE, WE HAVE NO ALTERNATIVE BUT TO CONCLUDE THAT THE ADMINISTRATIVE ACTION IN THIS CASE WAS PROPER AND IN THE BEST INTEREST OF THE GOVERNMENT.