B-142939, JUNE 22, 1960, 39 COMP. GEN. 868

B-142939, JUNE 22, 1960, 39 COMP. GEN. 868

BIDDERS - QUALIFICATIONS - SMALL BUSINESS CERTIFICATE - CAPACITY DETERMINATION THE REJECTION OF A LOW BIDDER, WHO HAD A SMALL BUSINESS CERTIFICATE OF COMPETENCY, FOR LACK OF INTEGRITY AND POOR BUSINESS PRACTICES BASED ON DEROGATORY MATERIAL RELATING TO THE CAPACITY OF THE OFFICERS OF THE PROSPECTIVE BIDDING COMPANY, A PURPORTED DEFAULT AND POOR PERFORMANCE UNDER A PRIVATE CONTRACT AND UNSUPPORTED STATEMENTS, WHICH DO NOT REFLECT UPON THE BIDDER'S INTEGRITY, MAY NOT BE REGARDED AS PROPER, THE CERTIFICATE OF COMPETENCY BEING CONCLUSIVE WITH RESPECT TO THE BIDDER'S CAPACITY; AND, THEREFORE, THE AWARD TO OTHER THAN THE LOWEST RESPONSIBLE BIDDER SHOULD BE CANCELED.

TO THE SECRETARY OF THE ARMY, JUNE 22, 1960:

BY LETTER DATED JUNE 2, 1960, FROM THE ASSISTANT SECRETARY ( LOGISTICS), THERE WAS FURNISHED A REPORT CONCERNING THE PROTEST OF THE C. G. KERSHAW CONTRACTING COMPANY AGAINST THE AWARD OF A CONTRACT TO WARREN BROTHERS ROADS COMPANY UNDER INVITATION FOR BIDS NO. CIVENG-22 052-60-64 DATED JANUARY 25, 1960, ISSUED BY THE DISTRICT ENGINEER, U.S. ARMY ENGINEER DISTRICT, VICKSBURG, MISSISSIPPI.

THREE BIDS WERE RECEIVED AND OPENED ON FEBRUARY 25, 1960, FOR FURNISHING, IN ACCORDANCE WITH THE TERMS OF THE INVITATION, 75,000 SQUARES (100 SQUARE FEET PER SQUARE) OF ARTICULATED CONCRETE REVETMENT MATTRESS TO BE MANUFACTURED AT A GOVERNMENT-OWNED PLANT AT GREENVILLE, MISSISSIPPI. THE BIDS WERE ABSTRACTED AS FOLLOWS:

C. G. KERSHAW CONTRACTING CO.---------------------$577,400.00

WARREN BROTHERS ROADS CO.------------------------ 601,050.00

FORDICE CONSTRUCTION CO.-------------------------- 602,367.01

THE PROTEST RESULTS FROM THE REJECTION OF KERSHAW'S LOW BID ON THE BASIS OF AN ADMINISTRATIVE DETERMINATION THAT NEITHER THE KERSHAW COMPANY NOR ITS PRINCIPALS ( KNOX KERSHAW, PRESIDENT, AND PAUL A. TEEGARDEN, VICE PRESIDENT AND TREASURER) WERE CAPABLE OR POSSESSED THE BUSINESS INTEGRITY NECESSARY TO PERFORM THE WORK REQUIRED BY THE INVITATION. IN VIEW THEREOF, AND NOTWITHSTANDING THE ISSUANCE OF A CERTIFICATE OF COMPETENCY TO KERSHAW BY THE SMALL BUSINESS ADMINISTRATION, IT IS ADMINISTRATIVELY RECOMMENDED THAT THE AWARD MADE TO WARREN BROTHERS ROADS COMPANY AS THE LOWEST RESPONSIBLE BIDDER BE ALLOWED TO STAND. IN THAT CONNECTION, IT IS POINTED OUT THAT THE WARREN BROTHERS ROADS COMPANY HAS BEEN ADVISED NOT TO INCUR ANY EXPENSES PRESUMABLY UNTIL THE MATTER HAS BEEN CONSIDERED BY OUR OFFICE.

THE FACTS AND CIRCUMSTANCES SUPPORTING THE ADMINISTRATIVE DETERMINATION TO REJECT KERSHAW'S BID ON THE BASIS OF POOR BUSINESS PRACTICES AND LACK OF INTEGRITY ARE SET OUT IN AN ADMINISTRATIVE REPORT DATED MAY 27, 1960, OF THE ASSISTANT CHIEF OF ENGINEERS FOR CIVIL WORKS.

THE REPORT STATES, IN PERTINENT PART, THAT THE KERSHAW COMPANY WAS INCORPORATED IN 1909 TO PERFORM MISCELLANEOUS CONSTRUCTION WORK; THAT THE COMPANY FILED A PETITION IN BANKRUPTCY IN 1951 WHICH WAS DISMISSED IN 1954; THAT THE COMPANY WAS INACTIVE UNTIL FEBRUARY 1960 WHEN IT WAS REACTIVATED APPARENTLY FOR THE PURPOSE OF BIDDING UNDER THE INSTANT INVITATION; AND THAT MESSRS. KERSHAW, TEEGARDEN AND HOLLOWAY ( SECRETARY) ARE THE PRINCIPALS OF THE COMPANY WITH MR. TEEGARDEN BEING THE SOLE STOCKHOLDER. ALSO, THE REPORT POINTS OUT THAT THE COMPANY HAS NO CURRENT CONTRACTS NOR HAS IT BEEN ENGAGED IN A CONTRACT FOR AT LEAST THE PAST 6 YEARS.

THE REPORT FURTHER STATES THAT MR. KERSHAW HAS HAD NO EXPERIENCE WHATSOEVER AS A MANAGER OR SUPERINTENDENT IN CHARGE OF A CONSTRUCTION PROJECT, BUT THAT HE HAS BEEN AN ENGINEER FOR A CONSTRUCTION CONTRACTOR FROM TIME TO TIME AND THAT THE GREATER PART OF HIS EXPERIENCE HAS CONSISTED OF HIS BEING A PROJECT ENGINEER OR INSPECTOR FOR HIGHWAY DEPARTMENTS AND OTHER LOCAL GOVERNMENT AGENCIES. IN THAT CONNECTION, INFORMATION HAS BEEN DEVELOPED WITH RESPECT TO MR. KERSHAW'S EXPERIENCE FROM PRIVATE SOURCES WHICH INDICATES, IN THE OPINION OF SUCH SOURCES, THAT HE LACKS EXPERIENCE FOR THE WORK CONTEMPLATED BY THE INVITATION.

CONCERNING MR. TEEGARDEN, THE REPORT STATES THAT A COMPANY IN WHICH HE IS INTERESTED IS PERFORMING CONSTRUCTION WORK FOR A RAILROAD; THAT REPRESENTATIVES OF THE RAILROAD HAVE ADVISED THAT THE CONTRACTOR ( TEEGARDEN) HAD NOT FURNISHED PROPER EQUIPMENT FOR THE JOB NOR ADEQUATE SUPERINTENDENCE; THAT THE CONTRACTOR IS THREE OR FOUR MONTHS BEHIND SCHEDULE; AND THAT MR. KERSHAW HAD ACTED AS SUPERINTENDENT AND ENGINEER BUT HAD VISITED THE JOB ONLY OCCASIONALLY. IT IS ALSO REPORTED THAT THE RAILROAD REPRESENTATIVE HAS ADVISED THAT THE RAILROAD PROPOSES TO REMOVE MR. TEEGARDEN FROM THEIR LIST OF ACCEPTABLE BIDDERS. IT IS FURTHER REPORTED THAT A REPRESENTATIVE OF THE BUREAU OF PUBLIC ROADS, STATE OF ALABAMA, RELAYED INFORMATION THAT THE BUREAU HAD RECEIVED A REPORT FROM THE INDIANA HIGHWAY DEPARTMENT TO THE EFFECT THAT MR. TEEGARDEN WAS NOT CONSIDERED A RESPONSIBLE BIDDER IN INDIANA; AND THAT HIS OPERATIONS WERE CONSIDERED "FAST AND LOOSE" BECAUSE OF THE NUMEROUS SMALL CORPORATIONS IN WHICH HE IS, OR HAS BEEN, INTERESTED.

THE ASSISTANT CHIEF FURTHER ADVISES THAT A REVIEW OF CREDIT REPORTS ON MESSRS. KERSHAW AND TEEGARDEN INDICATES THAT THEY DO NOT HAVE EXPERIENCE RECORDS WHICH WOULD QUALIFY THEM IN OPERATING A PLANT OF SUCH HIGHLY COMPLEX AND TECHNICAL NATURE AS THE ONE INVOLVED HERE, AND THAT THE BUSINESS PRACTICES OF MR. TEEGARDEN, AS REFLECTED IN THESE REPORTS AND THE RAILROAD CONSTRUCTION WORK HE IS NOW PERFORMING, DO NOT INDICATE A PERSON OF STABILITY OR GOOD BUSINESS INTEGRITY.

WITH RESPECT TO THE ISSUANCE OF THE CERTIFICATE OF COMPETENCY TO THE KERSHAW COMPANY, THE REPORT STATES:

9. IT IS RECOGNIZED THAT THE SBA HAS AUTHORITY TO DETERMINE THE CAPACITY AND CREDIT OF AN ORGANIZATION AND TO EVIDENCE SUCH DETERMINATION BY THE ISSUANCE OF A CERTIFICATE OF COMPETENCY. THIS CERTIFICATE IS BINDING UPON A PROCUREMENT AGENCY AS TO THE CONTRACTOR'S ABILITY TO PERFORM. HOWEVER, THE RECORD OF THE PRINCIPALS IN THE KERSHAW COMPANY INDICATES TO ME THAT EVEN ON THE LIMITED NUMBER OF CONTRACTS THEY HAVE BEEN INVOLVED IN THEY HAVE ENGAGED IN POOR BUSINESS PRACTICES AND HAVE EXHIBITED POOR BUSINESS INTEGRITY. FOR EXAMPLE, MR. TEEGARDEN IS NOT ACCEPTABLE AS A CONTRACTOR WITH HIS OWN STATE GOVERNMENT BECAUSE OF HIS WAY OF DOING BUSINESS (ORGANIZATION OF SMALL CORPORATIONS WITH LIMITED ASSETS AND FIGUREHEADS AS PRINCIPALS); HIS STATEMENT THAT HE WILL SHIFT EQUIPMENT FROM HIS SANTA FE JOB IN TEXAS TO THIS JOB IS MISLEADING SINCE HE IS ONLY 33 PERCENT COMPLETE AND THE EQUIPMENT ON THE JOB IS A BARE MINIMUM. ATTENTION IS INVITED TO COMP. GEN. DECISION B-138233, 24 FEB. 1959 WHEREIN THE COMPTROLLER GENERAL HELD THAT INASMUCH AS A CONTRACTOR HAD ENGAGED IN POOR BUSINESS PRACTICES ON PREVIOUS CONTRACTS (FAILURE TO FOLLOW GOOD MANAGEMENT PRACTICES; FAILURE TO FURNISH EQUIPMENT AS PROMISED), REFERRAL TO THE SBA WOULD NOT "HAVE SERVED ANY USEFUL PURPOSE" SINCE "DEFICIENCIES IN THE AREA OF BUSINESS PRACTICES ARE NOT SUBJECT TO CERTIFICATION OF COMPETENCY.' ALSO IN 39 COMP. GEN. 468 AT 471, 472, THE COMPTROLLER GENERAL FOUND THAT A "CORPORATION CAN BE NO GREATER THAN THE INTEGRITY OF THE INDIVIDUALS WHO CONTROL ITS OPERATION. WHETHER EVIDENCE OF A BIDDER'S LACK OF INTEGRITY IS SUFFICIENT TO WARRANT A FINDING IN ANY PARTICULAR CASE THAT THE BIDDER IS NOT RESPONSIBLE IS A MATTER PRIMARILY FOR EVALUATION BY THE PROCURING AGENCY AND BECAUSE REASONABLE MEN MAY WELL DISAGREE IN SUCH EVALUATION, THIS OFFICE ( COMPTROLLER GENERAL) HAS ADOPTED THE RULE THAT WE WILL NOT SUBSTITUTE OUR JUDGMENT FOR THAT OF THE CONTRACTING AGENCY UNLESS IT IS SHOWN THAT THE AGENCY'S DETERMINATION WAS NOT BASED ON EVIDENCE DEMONSTRATING THE BIDDER'S LACK OF RESPONSIBILITY.' THE ABOVE "GROUND RULES" WERE USED BY THE CONTRACTING OFFICER AND THE UNDERSIGNED IN ARRIVING AT THE DECISION IN QUESTION. QUESTIONS OF BUSINESS INTEGRITY AND POOR BUSINESS PRACTICES ARE SO INTANGIBLE THAT THEY MUST BE EVALUATED IN THE LIGHT OF CIRCUMSTANCES SURROUNDING EACH CASE. WHAT WAS SUBMITTED AS A MATTER OF WRITTEN RECORD, PLUS ORAL STATEMENTS FROM OBJECTIVE SOURCES, COUPLED WITH PERSONAL INTERVIEWS WITH THE PRINCIPALS OF THE KERSHAW CO., LEAD TO THE EVALUATION THAT IT WAS COMPOSED OF INDIVIDUALS WHO HAD AND WERE LIKELY TO INDULGE IN PRACTICES WHICH WOULD BE DETRIMENTAL TO THE FULFILLMENT OF THIS CONTRACT. THE EVIDENCE FROM FORMER ASSOCIATES OF ONE OF THE PRINCIPALS AND EVIDENCE FROM A GOVERNMENT DEPARTMENT IN THE HOME STATE OF ANOTHER WAS INDICATIVE OF THE BUSINESS PRACTICES OF BOTH. * * *

MUCH OF THE INFORMATION CONTAINED IN THE REPORT OF THE ASSISTANT CHIEF OF ENGINEERS HAS REFERENCE TO THE "CAPACITY" OF MESSRS. KERSHAW AND TEEGARDEN TO PERFORM THE REQUIRED WORK UNDER THE INVITATION. IN THAT CONNECTION, THE RATIONALE OF OUR DECISION REPORTED AT 38 COMP. GEN. 864, AFFIRMED IN DECISION B-139366 DATED NOVEMBER 6, 1959, CONCERNING THE LEGAL EFFECT OF THE TERM ,CAPACITY" AS USED IN A CERTIFICATE OF COMPETENCY ISSUED BY THE SMALL BUSINESS ADMINISTRATION UNDER SECTION 8 (B) (7) OF PUBLIC LAW 85-536, 15 U.S.C. 637 (B) (7), HAS BEEN ADOPTED BY THE DEPARTMENT OF DEFENSE IN REVISION 54 DATED MAY 2, 1960, OF SECTION 1-705.6 (A) OF THE ARMED SERVICES PROCUREMENT REGULATION. THAT SUBSECTION READS, IN PART, THAT:

SBA HAS STATUTORY AUTHORITY TO CERTIFY THE COMPETENCY OF ANY SMALL BUSINESS CONCERN AS TO CAPACITY AND CREDIT. " CAPACITY" MEANS THE OVERALL ABILITY OF A PROSPECTIVE SMALL BUSINESS CONTRACTOR TO MEET QUALITY, QUANTITY, AND TIME REQUIREMENTS OF A PROPOSED CONTRACT AND INCLUDES ABILITY TO PERFORM, ORGANIZATION, EXPERIENCE, TECHNICAL KNOWLEDGE, SKILLS,"KNOW-HOW," TECHNICAL EQUIPMENT AND FACILITIES. CONTRACTING OFFICERS SHALL ACCEPT SBA CERTIFICATES OF COMPETENCY AS CONCLUSIVE OF A PROSPECTIVE CONTRACTOR'S RESPONSIBILITY AS TO CAPACITY * * *

SINCE MOST OF THE DEFICIENCIES NOTED IN THE REPORT MUST BE REGARDED AS RELATING TO THE CAPACITY OF THE KERSHAW COMPANY, THEY ARE NOT FOR CONSIDERATION IN VIEW OF THE CONCLUSIVE CHARACTER OF THE CERTIFICATE OF COMPETENCY RESPECTING KERSHAW'S "CAPACITY.'

CONCERNING THE PURPORTED DEFAULT AND POOR PERFORMANCE OF MR. TEEGARDEN UNDER A PRIVATE CONTRACT, WE DO NOT FEEL THAT SUCH SITUATION MEETS THE CRITERIA SET OUT IN SECTION 1-903.1 (D) OF THE ASPR, RESPECTING THE MINIMUM STANDARDS FOR RESPONSIBLE PROSPECTIVE CONTRACTORS. MOREOVER, THERE IS CONSIDERABLE DOUBT WHETHER THAT REGULATION ENVISAGED DELINQUENCIES SUCH AS HERE INVOLVED, WHICH AROSE UNDER PRIVATE, RATHER THAN GOVERNMENT, CONTRACTS.

THE ALLEGATION THAT MR. TEEGARDEN "WAS NOT CONSIDERED A RESPONSIBLE BIDDER" BY THE HIGHWAY DEPARTMENT OF THE STATE OF INDIANA DOES NOT APPEAR TO BE A SATISFACTORY INDEX OF MR. TEEGARDEN'S BUSINESS INTEGRITY, ESPECIALLY SINCE THE INFORMATION IS NOT SUPPORTED BY COMPETENT EVIDENCE AND, AT BEST, REPRESENTS AN ISOLATED STATEMENT WITHOUT SIGNIFICANT PROBATIVE VALUE. SEE, IN THIS CONNECTION, BIRD V. HALEY, 87 F. 671.

AS INDICATED IN THE REPORT OF THE ASSISTANT CHIEF OF ENGINEERS, THE FORMULATION OF PRECISE RULES FOR APPLICATION IN DETERMINING A BIDDER'S LACK OF INTEGRITY IS NOT FEASIBLE. EACH CASE MUST BE EVALUATED IN THE LIGHT OF THE PARTICULAR CIRCUMSTANCES INVOLVED. WE BELIEVE, AS A GENERAL PROPOSITION, THAT A BIDDER'S INTEGRITY AND BUSINESS ETHICS MAY PROPERLY BE DETERMINED ADMINISTRATIVELY BY APPLYING THE " CAUSES FOR DEBARMENT" ENUMERATED IN SECTION 1-604.1 OF THE ASPR, OR THE CAUSES AND CONDITIONS FOR THE SUSPENSION OF CONTRACTORS SET OUT IN SECTION 1-605.1 OF THE ASPR. HOWEVER, THOSE REGULATIONS, AS WELL AS THE DECISIONS OF OUR OFFICE, CONTEMPLATE THAT THE ADMINISTRATIVE DETERMINATION OF LACK OF INTEGRITY OR BUSINESS ETHICS BE BASED ON CLEAR AND CONVINCING EVIDENCE DEMONSTRATING SUCH DEFICIENCIES ON THE PART OF THE BIDDER.

THE DECISIONS OF OUR OFFICE, REFERRED TO IN THE REPORT, AS BEING THE "GROUND RULES" USED BY THE CONTRACTING OFFICER IN HIS DETERMINATION TO REJECT KERSHAW'S BID WERE BASED ON SUBSTANTIAL, DOCUMENTARY EVIDENCE THAT THE BIDDERS WERE NOT RESPONSIBLE PROSPECTIVE CONTRACTORS BECAUSE OF SERIOUS DEFICIENCIES NOT OTHERWISE RELATED TO THEIR CAPACITY OR CREDIT. IN B-138233, FEBRUARY 24, 1959, THE EVIDENCE OF RECORD SUBSTANTIATED POOR BUSINESS PRACTICES IN REGARD TO EQUIPMENT, PERSONNEL, PRODUCTION AND BUSINESS RELATIONS. OUR DECISION REPORTED AT 39 COMP. GEN. 468 INVOLVED THE CONVICTION OF A MEMBER OF A JOINT VENTURE, BIDDING ON A GSA CONTRACT, FOR FEDERAL INCOME TAX EVASIONS INCIDENT TO THE PERFORMANCE OF GOVERNMENT CONTRACTS, AND, FOLLOWING THE GENERAL RULES FOR DETERMINING A PROSPECTIVE CONTRACTOR'S INTEGRITY, WE HELD THAT SUCH A PERSON WAS NONRESPONSIBLE BECAUSE OF LACK OF INTEGRITY. BOTH OF THOSE DECISIONS ARE DISTINGUISHABLE FROM THE INSTANT MATTER IN THAT THE DEFICIENCIES THERE INVOLVED WERE ADEQUATELY SUPPORTED AND ESTABLISHED RENDERED THE SATISFACTORY PERFORMANCE OF A GOVERNMENT CONTRACT EXTREMELY UNCERTAIN. THAT IS NOT THE CASE HERE. WE ARE UNABLE TO AGREE WITH THE PROPOSITION THAT THE PRINCIPALS OF THE KERSHAW COMPANY LACKED INTEGRITY OR HAD DEMONSTRATED POOR BUSINESS PRACTICES. A CAREFUL EXAMINATION OF ALL OF THE PERTINENT FILES REVEALS THAT MUCH OF THE DEROGATORY MATERIAL RELATES TO THE PARTIES' CAPACITY AND THAT THE REMAINING DEFICIENCIES HAVE REFERENCE TO MATTERS WHICH, IN OUR OPINION, DO NOT REFLECT UPON THE BIDDER'S INTEGRITY.

ACCORDINGLY, THE AWARD MADE TO WARREN BROTHERS ROADS COMPANY SHOULD BE CANCELED AND, IF OTHERWISE PROPER, THE BID OF THE C. G. KERSHAW CONTRACTING COMPANY SHOULD BE CONSIDERED FOR AWARD AS THE LOWEST RESPONSIBLE BIDDER.

THE FILES ENCLOSED WITH THE ASSISTANT SECRETARY'S LETTER ARE RETURNED AS REQUESTED.