B-147016, NOVEMBER 17, 1961, 41 COMP. GEN. 306

B-147016, NOVEMBER 17, 1961, 41 COMP. GEN. 306

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - NEGOTIATION--- CONTRACTS AWARDS - SMALL BUSINESS CONCERNS - PRICE REASONABLENESS--- CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - PRICE REASONABLENESS--- CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - FLOATING SET-ASIDES--- CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - FLOATING SET-ASIDES ALTHOUGH SECTION 15 OF THE SMALL BUSINESS ACT, 15 U.S.C. 644, DOES NOT SPECIFICALLY PROVIDE FOR THE NEGOTIATION OF CONTRACTS WITH SMALL BUSINESS CONCERNS, TO CONSTRUE THE MANDATORY LANGUAGE OF THE SECTION AS MERELY PERMITTING SMALL BUSINESS CONCERNS TO PARTICIPATE IN PROCUREMENTS ON THE BASIS OF HAVING SUBMITTED THE LOWEST RESPONSIVE BIDS UNDER FORMAL ADVERTISING PROCEDURES, WHICH THEY ARE ENTITLED TO DO, WOULD RENDER THE SECTION MEANINGLESS AND SERVE NO USEFUL PURPOSE; THEREFORE, THE SECTION IS CONSTRUED AS AUTHORIZING THE NEGOTIATION OF PARTIAL SET-ASIDES FOR SMALL BUSINESS SUBSEQUENT TO THE UNRESTRICTED FORMALLY ADVERTISED PORTION OF A PROCUREMENT. THE NEGOTIATION OF CONTRACTS WITH SMALL BUSINESS CONCERNS ON PARTIAL SET- ASIDES AT PRICES HIGHER THAN OTHERWISE OBTAINABLE FROM LARGE BUSINESS CONCERNS THAT HAVE SUBMITTED BIDS ON THE FORMALLY ADVERTISED PORTION OF A MILITARY PROCUREMENT FOR JET FUELS UNDER 10 U.S.C. 2304 (A) (17), WHICH PROVIDES THAT THE HEAD OF A MILITARY AGENCY MAY NEGOTIATE A PURCHASE OR CONTRACT IF NEGOTIATION IS OTHERWISE AUTHORIZED AND UNDER SECTION 15 OF THE SMALL BUSINESS ACT, 15 U.S.C. 644, WHICH IN EFFECT AUTHORIZES THE NEGOTIATION OF CONTRACTS WITH SMALL BUSINESS CONCERNS, IS NOT IMPROPER, AND, THEREFORE, THE MILITARY PETROLEUM SUPPLY AGENCY MAY, IN VIEW OF THIS DISCRETIONARY NEGOTIATION AUTHORITY AND THE PERMISSION GRANTED BY THE ARMED SERVICES PROCUREMENT REGULATION COMMITTEE TO DEVIATE FROM PARAGRAPH 1-706.6 (E) OF THE ARMED SERVICES PROCUREMENT WHICH REQUIRES AWARDS ON THE SET-ASIDE PORTION TO BE AT THE HIGHEST UNIT PRICE FOR THE NON-SET-ASIDE PORTION, DETERMINE THE PRICES AT WHICH CONTRACTS MAY BE AWARDED TO SMALL BUSINESS CONCERNS ON THE SET ASIDE PORTION WITHOUT REFERENCE TO THE AWARD PRICES ON THE NON-SET ASIDE PORTION SO LONG AS THE TOTAL COST OF THE PROCUREMENT WOULD NOT EXCEED WHAT IT WOULD HAVE BEEN WITHOUT A SET-ASIDE. WHEN A LARGE BUSINESS CONCERN OFFERS TO SUPPLY THE ENTIRE QUANTITY OF A PROCUREMENT FOR JET FUEL UNDER WHICH AN INDEFINITE AMOUNT WAS RESERVED FOR SMALL BUSINESS, THE USE OF BLANKET AUTHORITY GIVEN TO THE MILITARY SUPPLY AGENCY TO DEVIATE FROM THE REQUIREMENTS OF PARAGRAPH 1.706.6 (E) OF THE ARMED SERVICES PROCUREMENT REGULATION LIMITING THE PRICE AT WHICH AWARDS ON THE SET-ASIDE PORTION MAY BE MADE, ON THE BASIS THAT MULTIPLE AWARDS AT VARIOUS PRICES TO VARIOUS CONCERNS WOULD HAVE BEEN NECESSARY HAD THERE BEEN NO SET-ASIDE, IS NOT FOR APPLICATION AND, THEREFORE, AWARDS ON THE SET-ASIDE PORTION AT PRICES HIGHER THAN HIGHEST UNIT PRICE AWARDED UNDER THE NON-SET-ASIDE PORTION ARE REQUIRED TO BE ADJUSTED DOWNWARD. THE "FLOATING SET-ASIDE" PROCEDURE USED BY THE MILITARY PETROLEUM SUPPLY AGENCY FOR JET FUEL PROCUREMENT UNDER WHICH BIDDERS ARE PUT ON NOTICE IN THE INVITATION FOR THE NON-SET-ASIDE PORTION THAT A MAXIMUM QUANTITY WOULD BE SET ASIDE FOR SMALL BUSINESS BUT THAT SPECIFIC QUANTITY ALLOCATIONS OF THE SET-ASIDE BY AREA AND SPECIFIC ITEMS WOULD NOT BE DETERMINED UNTIL AFTER BIDS ARE OPENED RESULTS IN BIDDERS, WITHOUT KNOWLEDGE OF THE QUANTITY REQUIRED, BEING UNABLE TO SUBMIT COMPETITIVE AND INTELLIGENT BIDS AS REQUIRED UNDER FORMALLY ADVERTISED PROCUREMENTS AND IN THE CONTRACTING OFFICER BEING SUBJECT TO CHARGES OF FAVORITISM, COLLUSION AND ARBITRARY ACTION BECAUSE THE DETERMINATION OF THE QUANTITY TO BE SET ASIDE FOR SMALL BUSINESS IS BASED ON ARBITRARY AND SUBJECTIVE CRITERIA; THEREFORE, THE "FLOATING SET-ASIDE" PROCEDURE SHOULD BE ELIMINATED IN FUTURE PROCUREMENTS. ALTHOUGH AWARDS OF CONTRACTS FOR JET FUEL WERE MADE UNDER "FLOATING SET- ASIDE" PROCEDURE, WHICH IS REGARDED AS INHERENTLY DESTRUCTIVE OF THE COMPETITIVE BIDDING SYSTEM, CANCELLATION OF THE CONTRACTS WHICH WERE AWARDED FOR PERIODS OF ONLY 6 MONTHS AND UNDER WHICH DELIVERIES HAVE ALREADY BEGUN WOULD NOT BE IN THE GOVERNMENT'S INTEREST NOR SERVE ANY USEFUL PURPOSE.

TO ADMIRAL T. L. BECKNELL, JR., MILITARY PETROLEUM SUPPLY AGENCY, NOVEMBER 17, 1961:

WE REFER TO YOUR LETTER DATED AUGUST 30, 1961, AND A LETTER DATED OCTOBER 2, 1961, FROM RICHARD E. SCHATTMAN, ASSISTANT COUNSEL OF YOUR AGENCY, SUBMITTING REPORTS AND RELATED DOCUMENTS IN CONNECTION WITH A PROTEST FILED WITH THIS OFFICE BY SPERING, MORTON AND DUTTON, ATTORNEYS FOR COSDEN PETROLEUM CORPORATION, BIG SPRING, TEXAS, AGAINST AWARD OF CONTRACTS FOR JP-4 JET FUEL UNDER ITEM AF-128, DYESS AIR FORCE BASE, OF INVITATION FOR BIDS NO. 61-161.

THE SUBJECT INVITATIONS FOR BIDS WAS ISSUED ON JUNE 15, 1961, TO MEET REQUIREMENTS OF THE ARMY, NAVY AND AIR FORCE FOR JET FUEL, GRADES JP-3 AND JP-4 FOR APPROXIMATELY 300 LOCATIONS THROUGHOUT THE UNITED STATES FOR THE PERIOD OCTOBER 1, 1961, THROUGH MARCH 31, 1962. THE TOTAL QUANTITY OF JP- 4 JET FUEL TO BE PURCHASED UNDER THE INVITATION WAS 44,444,524 BARRELS. THE INVITATION CONTAINED A SET-ASIDE FOR SMALL BUSINESS AMOUNTING TO 6,000,000 BARRELS. PARAGRAPH A ON PAGE 4 OF THE INVITATION PROVIDES AS FOLLOWS:

GENERAL INFORMATION

1. A PORTION OF THE REQUIREMENTS FOR JP-4 JET FUEL SET FORTH IN THIS INVITATION FOR BIDS IS RESERVED AS A SET-ASIDE FOR SMALL BUSINESS. THE MAXIMUM QUANTITY SET-ASIDE IS 6,000,000 BBLS. THE QUANTITY OF THE ENTIRE PROCUREMENT OF JP-4 INCLUDING THE SET-ASIDE IS APPROXIMATELY 44,444,524 BBLS. SPECIFIC QUANTITY ALLOCATIONS OF THE SET-ASIDE BY GEOGRAPHIC AREA AND SPECIFIC ITEMS WILL BE FIXED AFTER RECEIPT OF BIDS.

2. ONLY ONE BID ON THE QUANTITIES SET FORTH IN THE INVITATIONS FOR BIDS SHALL BE SUBMITTED. TO BE CONSIDERED FOR THE SET-ASIDE PORTION OF THIS PROCUREMENT A BIDDER QUALIFYING AS SMALL BUSINESS MUST BID ON THE NONSET- ASIDE PORTION OF THE PROCUREMENT.

3. AFTER AWARDS HAVE BEEN MADE UNDER THE NONSET-ASIDE PORTION OF THIS PROCUREMENT, NEGOTIATIONS WILL BE COMMENCED WITH SMALL BUSINESS CONCERNS WHO HAVE BID ON THE VARIOUS ITEMS ON WHICH A SET-ASIDE HAS BEEN MADE AND WHO OTHERWISE QUALIFY FOR THE SMALL BUSINESS SET-ASIDE. NEGOTIATIONS WILL COMMENCE, BEGINNING WITH THAT BIDDER WHO SUBMITTED THE LOWEST RESPONSIVE BID FOR A QUANTITY WHICH WAS NOT AWARDED IN CONNECTION WITH THE NONSET- ASIDE PORTION OF THAT ITEM AND CONTINUING WITH THE NEXT LOWEST BIDDER UNTIL THE TOTAL SET-ASIDE HAS BEEN AWARDED OR AVAILABLE OFFERS SUBMITTED BY QUALIFIED SMALL BUSINESSES ARE EXHAUSTED. FOR THIS PURPOSE, WHEN A BID OFFERS INCREMENTS AT DIFFERENT PRICES, EACH INCREMENT WILL BE CONSIDERED AS A SEPARATE BID. EACH NEGOTIATION WILL BE LIMITED TO THE QUANTITY OFFERED IN EACH BID AND NOT AWARDED UNDER THE NONSET-ASIDE PORTION.

4. AWARDS OF ANY PORTION OF THE NONSET-ASIDE QUANTITIES TO CONCERNS QUALIFYING AS SMALL BUSINESS SHALL NOT REDUCE THE QUANTITY OF THE SET ASIDE.

ITEM AF-128 CALLED FOR DELIVERY OF 19,000,000 GALLONS OF JP-4 JET FUEL BY TANK CAR, TRANSPORT TRUCK, OR PIPELINE TO DYESS AIR FORCE BASE, TYE, TEXAS. BIDS WERE OPENED ON JULY 13, 1961, AND BIDS WERE RECEIVED FROM BOTH LARGE AND SMALL BUSINESS CONCERNS. AN ABSTRACT OF THE BIDS SHOWS THE FOLLOWING PRICES ON A DELIVERED BASIS FOR THE QUANTITIES OFFERED WITH DISCOUNTS APPLIED:

CHART

METHOD OF

BIDDER QUANTITY PRICE DELIVERY PREMIER OIL AND REFINING CO. 6,000,000 GAL. $0.098406 TRUCK COSDEN PETROLEUM CORPORATION 19,000,000 GAL. 10.099

PIPELINE INTERNATIONAL MARKETING, INC. 2,500,000 GAL. 10.102298 TRUCK INTERNATIONAL MARKETING, 12NC. 2,500,000 GAL. 10.105794 TRUCK DEBCO CORPORATION 7,500,000 GAL. 10.102861 TRUCK PETROLEUM REFINING CO. 7,000,000 GAL. 10.104895TRUCK

IN ADDITION, THE RECORD SHOWS THAT THE BID PRICE OF COSDEN PETROLEUM CORPORATION WAS DEPENDENT UPON THE QUANTITY OF JET FUEL AWARDED IT. THAT IS, WITHOUT REGARD TO THE DISCOUNT, COSDEN QUOTED A PRICE OF $0.10 PER GALLON AND THEN STATED IN ITS BID THAT " IN THE EVENT WE ARE AWARDED AS MUCH AS 17,000,000 GALLONS OR MORE UNDER ITEM 128, OUR PRICE WILL BE REDUCED $0.005 PER GALLON TO $0.095 PER GALLON ON THIS ITEM OF OUR BID.'

WITH REGARD TO THE SIZE STATUS OF THE ABOVE-LISTED BIDDERS IT IS REPORTED THAT INTERNATIONAL MARKETING, INC., DEBCO CORPORATION AND PETROLEUM REFINING COMPANY ARE SMALL BUSINESS CONCERNS WHILE COSDEN AND PREMIER ARE CONSIDERED LARGE BUSINESS CONCERNS.

IN YOUR LETTER OF AUGUST 30, 1961, IT IS STATED THAT SOMETIME AFTER THE BIDS WERE OPENED, DURING THE PERIOD OF EVALUATION, A REPRESENTATIVE OF THE COSDEN PETROLEUM CORPORATION WAS INFORMED BY THE CONTRACTING OFFICER, PURSUANT TO THE SET-ASIDE PROVISIONS OF THE INVITATION FOR BIDS, THAT A SET-ASIDE FOR SMALL BUSINESS OF AT LEAST 2,500,000 GALLONS WOULD BE PLACED ON ITEM AF-128. THE COSDEN REPRESENTATIVE WAS FURTHER INFORMED THAT IT WAS APPARENT THIS SET-ASIDE WOULD PRECLUDE THE GOVERNMENT FROM ACCEPTING A QUANTITY OF 17,000,000 GALLONS OR MORE FROM COSDEN AND, THEREFORE, THE $0.095 PER GALLON PRICE WOULD NOT BE AVAILABLE TO THE GOVERNMENT. YOU SAY IT WAS ALSO APPARENT TO COSDEN THAT WITH THE 1/2 CENT REDUCTION IN PRICE, BASED UPON AN AWARD OF 17,000,000 GALLONS OR MORE, IT WAS THE LOW BIDDER ON THE ITEM, BUT WITHOUT THE 1/2 CENT REDUCTION, COSDEN WAS NOT THE LOW BIDDER AND WOULD PROBABLY RECEIVE NO AWARD AT ALL.

THE LETTER OF OCTOBER 2, 1961, REPORTS THAT AWARDS UNDER THE INVITATION WERE MADE AS FOLLOWS:

BECAUSE THE DELIVERY PERIOD OF THE CONTRACTS AFFECTED BY THE PROTEST COMMENCES ON 1 OCTOBER 1961 AND BECAUSE SUPPLIERS REQUIRE ADVANCE NOTICE, AWARDS HAVE BEEN MADE FOR SUPPLY OF DYESS AFB. THE AWARDS WERE MADE AS FOLLOWS:

NON SET-ASIDE

5,500,000 GALLONS TO PREMIER OIL AND REFINING AT ?098406

SET-ASIDE

7,500,000 GALLONS TO DEBCO CORP. AT ?09881

6,000,000 GALLONS TO PETROLEUM REFINING CO. AT ?09881 THE ABOVE AWARDS WERE ALL MADE ON A DELIVERED TO DESTINATION BASIS. THE PRICE PAID TO SMALL BUSINESS WAS THE "BALANCED PRICE" AUTHORIZED BY THE ASPR COMMITTEE AS A DEVIATION FROM ASPR. THE "BALANCED PRICE" IS DETERMINED BY TAKING THE WEIGHTED AVERAGE OF THE LARGE BUSINESS BIDS WHICH WOULD HAVE TO BE ACCEPTED TO MEET THE REQUIREMENT, IF THE TOTAL AMOUNT OF THE SET-ASIDE HAD NOT BEEN TAKEN BY SMALL BUSINESS.

IN THIS CASE, DEBCO CORPORATION ACCEPTED A SET-ASIDE QUANTITY GREAT ENOUGH TO EXCLUDE THE OFFER OF COSDEN AT ?095 PER GALLON BASED ON A MINIMUM AWARD OF 17,000,000 GALLONS. THEREFORE, THE ,BALANCED PRICE" WAS BASED UPON PREMIER'S PRICE OF ?0994, LESS 1 PERCENT DISCOUNT AND COSDEN'S PRICE OF ?10, LESS 1 PERCENT DISCOUNT.

IN A LETTER DATED SEPTEMBER 13, 1961, COSDEN'S ATTORNEYS CHALLENGE THE LEGALITY OF THE "FLOATING SET-ASIDE" PROCEDURE UTILIZED BY YOUR AGENCY UNDER WHICH THE SPECIFIC QUANTITY TO BE SET ASIDE FOR SMALL BUSINESS AT PARTICULAR LOCATIONS IS NOT DETERMINED UNTIL AFTER BIDS ARE OPENED. THIS POINT THE FOLLOWING CONTENTIONS ARE MADE BY THE ATTORNEYS FOR COSDEN:

* * * A DETERMINATION MADE BY THE AGENCY, AFTER THE BID OPENING, THATA MINIMUM QUANTITY OF 2,500,000 GALLONS OF ITEM AF-128 WOULD BE SET ASIDE FOR SMALL BUSINESS WOULD APPEAR TO BE WHOLLY ARBITRARY AND CLEARLY AGAINST THE BEST INTERESTS OF GOVERNMENT, IN VIEW OF THE BIDS RECEIVED. IF AS LITTLE AS 2,500,000 GALLONS WERE DEEMED AN APPROPRIATE QUANTITY TO BE PLACED AS A SET-ASIDE QUANTITY ON ITEM AF-128, WOULD NOT 2,000,000 GALLONS HAVE BEEN THE MORE SOUND QUANTITY TO BE FIXED FOR A SET-ASIDE, SINCE THIS WOULD HAVE PERMITTED THE FULL REQUIREMENT OF 19,000,000 GALLONS FOR ITEM AF-128 TO BE PROCURED AT THE LOWEST COST OFFERED TO GOVERNMENT? WITH MORE THAN 10,500,000 BARRELS OF PRODUCT OFFERED BY SMALL BUSINESS CONCERNS ON THIS IFB WITH WHICH TO EFFECTUATE THE SPECIFIED TOTAL MAXIMUM SET-ASIDE OF 6,000,000 BARRELS, IT IS DIFFICULT TO IMAGINE THAT THIS ADDITIONAL 500,000 GALLONS, A LITTLE LESS THAN 12,000 BARRELS, MUST BE PLACED ON A SET-ASIDE QUANTITY SPECIFICALLY ON ITEM AF-128. THE FULL PURCHASE COST DELIVERED TO GOVERNMENT OF THIS ADDITIONAL 500,000 GALLONS AT THE GOVERNMENT'S CONTEMPLATED SET-ASIDE AWARD PRICE OF $0.09881 IS ONLY $49,405. YET THE INCLUSION OF IT IN THE MINIMUM QUANTITY FIXED BY GOVERNMENT AS A SET-ASIDE ON ITEM AF-128 ARBITRARILY INCREASES THE COST TO GOVERNMENT OF THE TOTAL PROCUREMENT FOR THAT ITEM BY $88,218 (AS STATED IN OUR LETTER OF AUGUST 18, 1961), ON THE BASIS OF THE CONTEMPLATED AWARDS OUTLINED BY THE CONTRACTING OFFICER TO COSDEN.

IN ADDITION, OF COURSE, THE MPSA MUST ALSO MAKE A DETERMINATION THAT MORE 2,000,000 GALLONS MUST BE AWARDED ON A SET-ASIDE BASIS ON ITEM AF-128 IN ORDER TO OBTAIN THE TOTAL OF 6,000,000 BARRELS BY SET-ASIDE FOR SMALL BUSINESS. ADMINISTRATIVELY, NO MORE THAN 6,000,000 BARRELS MAY BE PROCURED BY SET-ASIDE, SINCE THIS IS THE "MINIMUM QUANTITY SET ASIDE" OFFICIALLY ESTABLISHED ON PAGE 4 OF THE IFB FOR THIS PROCUREMENT. MOREOVER, AS CONFIRMED BY THE QUOTED LANGUAGE OF THE IFB, AND AS WILL BE POINTED OUT LATER IN THIS MEMO, IT IS NOT OBLIGATORY THAT THE AGENCY PROCURE THE FULL AMOUNT OF 6,000,000 BARRELS BY SET ASIDE. NOT ONLY IS IT NOT OBLIGATORY, BUT IN OUR VIEW, SUCH PROCUREMENT BY SET-ASIDE AWARDS IS NOT AUTHORIZED BY LAW IN ANY CASE WHERE THE RESULTING PROCUREMENT COST TO GOVERNMENT WOULD BE HIGHER THAN IS OTHERWISE AVAILABLE UNDER THE SAME FORMALLY ADVERTISED BID INVITATION. CONGRESS HAS GIVEN NO AUTHORIZATION FOR A SUBSIDY OR PREMIUM PRICE TO BE AWARDED TO SMALL BUSINESS CONCERNS ABOVE OTHER QUALIFIED COMPETITIVE BIDS.

IN SUPPORT OF THESE CONTENTIONS COSDEN'S ATTORNEYS STATE THAT THE FUNDAMENTAL RULE OF LAW APPLICABLE TO MAKING AWARDS IN PURCHASES OF MILITARY SUPPLIES BY FORMAL ADVERTISING FOR BIDS, AS IN THE SUBJECT INVITATION FOR BIDS, IS CONTAINED IN THE PROVISIONS OF 10 U.S.C. 2305 (C) WHICH PROVIDES, INTER ALIA, THAT AWARDS SHALL BE MADE TO THE RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION AND WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. IT IS CONTENDED THAT SINCE THIS ACT WAS AMENDED AND REPUBLISHED BY THE ACT OF SEPTEMBER 2, 1958, 72 STAT. 1457, IT WAS ENACTED SUBSEQUENT TO THE SMALL BUSINESS ACT, 15 U.S.C. 631, ET SEQ. (ENACTED JULY 18, 1958), AND, THEREFORE, CONSTITUTES A DOMINANT, AS WELL AS IMPERATIVE OR MANDATORY, PROVISION OF LAW WHICH SHALL BE CARRIED OUT BY THE PROCURING OFFICER OR AGENCY IN MAKING ALL AWARDS UNDER FORMAL ADVERTISEMENTS FOR BIDS. IN VIEW OF THIS COSDEN QUESTIONS WHETHER SUBSEQUENT NEGOTIATION OF ANY PORTION (AS FOR A SMALL BUSINESS SET-ASIDE) OF A FORMALLY ADVERTISED PROCUREMENT HAS BEEN LEGALLY AUTHORIZED BY CONGRESS.

WITH REGARD TO THE PRICES AT WHICH THE PRESENT CONTRACTS WERE AWARDED, COSDEN CONTENDS THAT THESE AWARDS HAVE RESULTED IN HIGHER COSTS TO THE GOVERNMENT THAN WERE OTHERWISE AVAILABLE ON THE FORMALLY ADVERTISED PORTION OF THE PROCUREMENT AND THAT AWARDS RESULTING IN SUCH HIGHER COSTS ARE NOT AUTHORIZED.

THE FACTS AND CIRCUMSTANCES OF THIS CASE PRESENT THREE MAIN QUESTIONS FOR OUR CONSIDERATION: (1) WHETHER A SUBSEQUENT NEGOTIATION OF A SMALL BUSINESS SET-ASIDE PORTION OF A FORMALLY ADVERTISED PROCUREMENT HAS BEEN LEGALLY AUTHORIZED BY CONGRESS; (2) WHETHER THE AWARDS TO DEBCO CORPORATION AND PETROLEUM REFINING COMPANY, BOTH OF WHICH WERE AWARDED A SMALL BUSINESS SET-ASIDE PORTION OF THE PROCUREMENT, RESULTED IN HIGHER PRICES TO THE GOVERNMENT THAN WERE OTHERWISE AVAILABLE ON THE FORMALLY ADVERTISED PORTION OF THE PROCUREMENT, AND, IF SO, THE PROPRIETY OF SUCH AWARDS; AND (3) WHETHER THE "FLOATING SET-ASIDE" PROCEDURE UTILIZED BY YOUR AGENCY UNDER WHICH THE SET-ASIDE PORTION OF A PROCUREMENT IS NOT DETERMINED UNTIL AFTER BIDS ARE OPENED IS LEGALLY AUTHORIZED.

WITH REGARD TO THE FIRST QUESTION PRESENTED, IT HAS BEEN REPORTED THAT A JOINT DETERMINATION BY YOUR AGENCY AND THE SMALL BUSINESS ADMINISTRATION WAS MADE TO LIMIT A PORTION OF THE PRESENT PROCUREMENT TO SMALL BUSINESS CONCERNS AND THAT THE PROVISIONS OF 10 U.S.C. 2304 (A) (17) AND SECTION 15 OF THE SMALL BUSINESS ACT, 15 U.S.C. 644, WERE CITED AS THE AUTHORITY TO NEGOTIATE THE SET-ASIDE PORTION. SECTION 2304 (A) (17), TITLE 10, U.S.C. PROVIDES THAT THE HEAD OF AN AGENCY MAY NEGOTIATE A PURCHASE OR CONTRACT IF "NEGOTIATION OF THE PURCHASE OR CONTRACT IS OTHERWISE AUTHORIZED BY LAW.' SECTION 15 OF THE SMALL BUSINESS ACT PROVIDES IN PERTINENT PART

TO EFFECTUATE THE PURPOSES OF THIS ACT, SMALL-BUSINESS CONCERNS WITHIN THE MEANING OF THIS ACT SHALL RECEIVE ANY AWARD OR CONTRACT OR ANY PART THEREOF, AND BE AWARDED ANY CONTRACT FOR THE SALE OF GOVERNMENT PROPERTY, AS TO WHICH IT IS DETERMINED BY THE ADMINISTRATION AND THE CONTRACTING PROCUREMENT OR DISPOSAL AGENCY (1) TO BE IN THE INTEREST OF MAINTAINING OR MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, (2) TO BE IN THE INTEREST OF WAR OR NATIONAL DEFENSE PROGRAMS, (3) TO BE IN THE INTEREST OF ASSURING THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR PROPERTY AND SERVICES FOR THE GOVERNMENT ARE PLACED WITH SMALL BUSINESS CONCERNS * * *. ( ITALICS SUPPLIED.) IN 28 COMP. GEN. 662 WE HELD THAT SECTION 2 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947, 62 STAT. 21, 10 U.S.C. 2301, WHICH READS " IT IS THE DECLARED POLICY OF THE CONGRESS THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR SUPPLIES AND SERVICES FOR THE GOVERNMENT SHALL BE PLACED WITH SMALL BUSINESS CONCERNS," DID NOT, OF ITSELF, AUTHORIZE THE PROCUREMENT OF SUPPLIES WITHOUT ADVERTISING IN DEROGATION OF SECTION 3 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947 WHICH REQUIRES THAT " AWARD SHALL BE MADE * * * TO THAT RESPONSIBLE BIDDER WHOSE BID, CONFORMING TO THE INVITATION FOR BIDS, WILL BE MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED.'

SUBSEQUENTLY WE HELD IN 31 COMP. GEN. 347 THAT CONTRACTS COULD BE AWARDED TO SMALL BUSINESS FIRMS BY NEGOTIATION, UNDER SECTION 2 (C) (1) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947, 62 STAT. 21, 10 U.S.C. 2304 (A) (1), UPON A PROPER DETERMINATION BY THE AGENCY HEAD THAT THE AWARD IS NECESSARY IN THE PUBLIC INTEREST DURING A NATIONAL EMERGENCY OR WHEN SUCH ACTION IS SUPPORTED BY A DETERMINATION UNDER THE PROVISIONS OF SECTION 714 (F) (2) OF THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED, 65 STAT. 143. THIS SECTION TERMINATED ON JULY 31, 1953, BUT IT CONTAINED ESSENTIALLY THE SAME LANGUAGE NOW FOUND IN SECTION 15 OF THE SMALL BUSINESS ACT WITH REGARD TO AWARDING CONTRACTS WHEN IT IS DETERMINED TO BE IN THE INTEREST OF MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY OR TO BE IN THE INTEREST OF THE NATIONAL DEFENSE PROGRAM. SEE, ALSO, 31 COMP. GEN. 431, 37 ID. 271, 38 ID, 326, AND 37 ID. 268. THE LAST DECISION CITED CONTAINS THE FOLLOWING STATEMENT:

IT IS PERTINENT TO NOTE THAT THE SMALL BUSINESS ACT ITSELF PROVIDES IN SECTION 214 THEREOF, 15 U.S.C. 643 (NOW 15 U.S.C. 644), THAT IN ORDER TO EFFECTUATE THE PURPOSES OF THE ACT, SMALL BUSINESS SHALL RECEIVE THOSE PROCUREMENTS DETERMINED BY THE SMALL BUSINESS ADMINISTRATION AND THE PROCURING AGENCY TO BE "SET-ASIDE" FOR SMALL BUSINESS. TO THIS EXTENT, AND BY THIS SPECIFIC MEANS, THE CONGRESS HAS AUTHORIZED A DISREGARD OF THE STATUTES REQUIRING FORMAL ADVERTISING PROCEDURES. A MERE DECLARATION OF CONGRESSIONAL POLICY, WITHOUT IMPLEMENTATION THEREOF BY SPECIFIC LANGUAGE, SHOULD NOT IN OUR OPINION BE CONSTRUED AS REPEALING OR MAKING INAPPLICABLE DEFINITE STATUTORY RESTRICTIONS OTHERWISE APPLICABLE * * *. ( ITALICS SUPPLIED.)

WHILE IT IS TRUE THAT SECTION 15 OF THE SMALL BUSINESS ACT DOES NOT, IN SO MANY WORDS, SPECIFICALLY AUTHORIZE THE NEGOTIATION OF CONTRACTS, SUCH AUTHORITY IS NECESSARILY IMPLIED FROM THE LANGUAGE USED. THAT SECTION STATES THAT " TO EFFECTUATE THE PURPOSES OF THIS ACT, SMALL BUSINESS CONCERNS * * * SHALL RECEIVE ANY AWARD OR CONTRACT OR ANY PART THEREOF * * *.' THIS LANGUAGE IS COUCHED IN TERMS OF COMMAND AND MUST BE CONSTRUED AS MANDATORY. SEE 31 COMP. GEN. 431. IF SMALL BUSINESS PROCUREMENTS WERE NOT NEGOTIATED, SMALL BUSINESS FIRMS WOULD BE ELIGIBLE FOR AWARDS OF CONTRACTS ONLY ON THE BASIS OF HAVING SUBMITTED THE LOWEST RESPONSIVE BIDS UNDER FORMAL ADVERTISING PROCEDURES--- AWARDS WHICH THEY WOULD BE ENTITLED TO IN ANY EVENT. THE COMMAND OF SECTION 15 WOULD THEN BE AN EMPTY GESTURE SERVING NO USEFUL PURPOSE. WE MUST CONCLUDE, THEREFORE, THAT CONGRESS BY ENACTING SECTION 15 OF THE SMALL BUSINESS ACT HAS AUTHORIZED THE NEGOTIATION OF PARTIAL SET ASIDES FOR SMALL BUSINESS SUBSEQUENT TO THE UNRESTRICTED FORMALLY ADVERTISED PORTION OF A PROCUREMENT.

WITH REGARD TO THE SECOND QUESTION PRESENTED, PARAGRAPH 1-706.6 (E) OF THE ARMED SERVICES PROCUREMENT REGULATION ( ASPR) PROVIDES AS FOLLOWS:

AFTER ALL AWARDS HAVE BEEN MADE ON THE NON-SET-ASIDE PORTION, PROCUREMENT OF THE SET-ASIDE PORTION SHALL IN ALL INSTANCES BE EFFECTED BY NEGOTIATION. NEGOTIATIONS SHALL BE CONDUCTED ONLY WITH THOSE BIDDERS OR OFFERORS WHO HAVE SUBMITTED RESPONSIVE BIDS OR PROPOSALS ON THE NON-SET- ASIDE PORTION AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST AWARD MADE ON THE NON-SET-ASIDE PORTION AND WHO ARE DETERMINED TO BE RESPONSIBLE PROSPECTIVE CONTRACTORS FOR THE SET-ASIDE PORTION OF THE PROCUREMENT. NEGOTIATIONS SHALL BE CONDUCTED WITH SUCH SMALL BUSINESS CONCERNS IN THE ORDER OF PRIORITY AS INDICATED IN THE FOREGOING NOTICES. WHERE EQUAL LOW BIDS ARE RECEIVED ON THE NON-SET ASIDE PORTION FROM CONCERNS WHICH ARE ELIGIBLE FOR THE SET-ASIDE PORTION, THE CONCERN WHICH IS AWARDED THE NON-SET-ASIDE PORTION (UNDER THE EQUAL LOW BID PROCEDURES OF 2-407.6) SHALL HAVE FIRST PRIORITY WITH RESPECT TO NEGOTIATIONS FOR THE SET-ASIDE PORTION. THE SET-ASIDE PORTION WILL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED FOR THE NON SET-ASIDE PORTION.

YOUR AGENCY SUBMITTED, AS A PART OF THE RECORD IN THIS CASE, A LETTER ADDRESSED TO YOU DATED FEBRUARY 21, 1961, FROM THE CHIEF OF NAVAL MATERIAL IN WHICH YOUR AGENCY WAS GRANTED BLANKET AUTHORITY TO DEVIATE FROM ASPR 1- 706.6 (E) BY THE ASPR COMMITTEE. APPROVAL WAS GRANTED FOR THE DEVIATION SPECIFICALLY FOR:

1. THE MILITARY PETROLEUM SUPPLY AGENCY'S "BALANCED PRICE" DEVIATION.

2. THE "FLOATING SET-ASIDE" DEVIATION.

3. THE "STEP-PRICE" DEVIATION.

4. THE "EXCHANGE AGREEMENTS" DEVIATION.

ONLY THE FIRST TWO DEVIATIONS FROM ASPR 1-706.6 (E) ARE INVOLVED IN THE MATTER BEFORE US AND ONLY THESE TWO, THEREFORE, WILL BE DISCUSSED HERE.

IN A STATEMENT DATED AUGUST 5, 1960, TO THE ASPR COMMITTEE IN SUPPORT OF YOUR REQUEST FOR DEVIATIONS, THE PURPOSE AND JUSTIFICATION FOR YOUR REQUEST ARE SET FORTH IN CONSIDERABLE DETAIL. THE PERTINENT PORTIONS OF THIS STATEMENT MAY BE QUOTED AS FOLLOWS:

3. MPSA PROPOSES THAT, WHEN MULTIPLE AWARDS FOR JET FUELS AT VARIOUS PRICES TO VARIOUS CONCERNS WOULD HAVE BEEN NECESSARY HAD THERE BEEN NO SET -ASIDE TO COVER THE REQUIREMENTS OF THE ARMED SERVICES FOR A PARTICULAR ITEM, THE AWARDS TO SMALL CONCERNS UNDER THE SET-ASIDE PORTION SHOULD BE MADE AT UNIT PRICES NO LOWER THAN THE COST WOULD HAVE BEEN HAD THERE BEEN NO SET-ASIDE.

JUSTIFICATION NEED FOR MULTIPLE AWARDS

4. AT CERTAIN LOCATIONS THE NEEDS OF THE ARMED SERVICES FOR PETROLEUM PRODUCTS ARE SO LARGE THAT ONE SUPPLIER DOES NOT OFFER SUFFICIENT PRODUCT TO MEET THE FULL REQUIREMENT. IN SUCH INSTANCES THE PRODUCT OFFERED BY TWO OR MORE SUPPLIERS MUST BE ACCEPTED.

5. AT NUMEROUS OTHER LOCATIONS MANY BIDDERS OFFER AN INCREMENT OF THEIR PRODUCTION AT A LOW PRICE, A SECOND INCREMENT AT A HIGHER PRICE, A THIRD INCREMENT AT A STILL HIGHER PRICE, ETC. AS A RESULT "A" MAY BE THE LOW BIDDER FOR 10 PERCENT OF AN ITEM,"B" NEXT LOW FOR 20 PERCENT,"C" NEXT LOW FOR 15 PERCENT,"A" NEXT (WITH HIS SECOND INCREMENT) FOR 20 PERCENT AND "B" NEXT (WITH HIS SECOND INCREMENT) FOR THE REMAINING 35 PERCENT.

6. MOST LARGE BUSINESS FIRMS AND MANY OF THE SMALL BUSINESS FIRMS HAVE MORE THAN ONE REFINERY. SINCE PRODUCT IS OFFERED AT ORIGIN, AS WELL AS AT DESTINATION, OCCASIONALLY FUEL AVAILABLE FROM TWO DIFFERENT REFINERIES OF THE SAME COMPANY WILL BE COMPETING FOR AWARD AT A PARTICULAR LOCATION. NEED FOR "FLOATING SET-ASIDE"

7. MPSA'S LARGEST SET-ASIDE OCCURS IN THE PROCUREMENT OF JET FUELS. JET FUEL IS RELATIVELY EASY TO PRODUCE. BECAUSE THE SPECIFICATION FOR JET FUEL IS BROAD AS TO THE VARIOUS DISTILLATION CUTS WHICH CAN BE USED, IT IS OFTEN BLENDED FROM COMPONENTS WHICH MANY REFINERS SOMETIMES HAVE DIFFICULTY IN MARKETING. OCCASIONALLY, WHEN SALES OF SUCH REFINERY COMPONENTS CANNOT BE ARRANGED AS JET FUELS, THE REFINER'S STORAGE TANKS BECOME FULL OF HARD TO MOVE COMPONENTS AND HE IS RESTRICTED IN HIS COMMERCIAL OPERATIONS. TO THE SMALL REFINER IN PARTICULAR THE SALE OF JET FUEL COMPLEMENTS AND HENCE INCREASES HIS REFINER'S ABILITY TO MARKET OTHER PRODUCTS.

8. HENCE, JET FUEL SALES PROVIDE A MEANS OF MOVING THE SOMETIMES DIFFICULT TO MOVE REFINERY COMPONENTS. HOWEVER, BECAUSE THE PRICE OF JET FUEL REMAINS LOW, THE REFINERS PREFER TO MOVE THEIR REFINERY COMPONENTS AS COMPONENTS OF COMMERCIAL FUELS IF AT ALL POSSIBLE.

9. AS A RESULT OF THE ABOVE, LARGE AND SMALL REFINERS VARY THEIR QUANTITY OFFERINGS OF JET FUEL FROM ONE BID TO THE NEXT. WITH RESPECT TO ANY PARTICULAR ITEM, THE CONTRACTING OFFICER DOES NOT KNOW WHETHER OR HOW MUCH ANY LARGE BUSINESS FIRM WILL OFFER OR WHETHER OR HOW MUCH ANY SMALL BUSINESS FIRM WILL OFFER. THEREFORE, IF THE CONTRACTING OFFICER WERE TO PRESELECT THE ITEMS AND QUANTITIES FOR THE SET-ASIDE, IT WOULD BE UNLIKELY THAT MPSA COULD AWARD ANYWHERE NEAR THE PRESENT QUANTITIES AWARDED SMALL BUSINESS.

10. THE PRACTICAL JET FUEL REFINING CAPACITY OF SMALL BUSINESS IS APPROXIMATELY 20,000,000 BARRELS PER YEAR. MPSA'S PLAN HAS BEEN TO TAKE AS MUCH OF THAT CAPACITY AS POSSIBLE. THIS IS DONE BY SETTING ASIDE APPROXIMATELY 10 TO 12 MILLION BARRELS A YEAR BUT NOT DESIGNATING THE SPECIFIC ITEMS TO WHICH THE SET-ASIDE WILL APPLY. NORMALLY, THREE TO FIVE MILLION BARRELS A YEAR ARE AWARDED SMALL BUSINESS ON A NONSET ASIDE BASIS. THE REMAINING QUANTITY OFFERED BY SMALL BUSINESS IS CONSIDERED FOR A SET-ASIDE AWARD BY FLOATING A SET-ASIDE TO THE ITEMS WHERE THE SMALL CAN MOST ADVANTAGEOUSLY SUPPLY. THE QUANTITY AWARDED ON A SET-ASIDE BASIS VARIES BETWEEN EIGHT TO ELEVEN MILLION BARRELS PER YEAR. BETWEEN FOUR AND SEVEN MILLION BARRELS PER YEAR OF CAPACITY ARE NOT AWARDED DUE TO REFUSAL TO MEET THE SET-ASIDE PRICE, TO INSUFFICIENT LOCAL MILITARY REQUIREMENT OR TO THE SMALL FIRM'S PREFERENCE TO SELL THE COMPONENTS COMMERCIALLY AND HENCE REDUCE HIS OFFERINGS TO GOVERNMENT.

13. THE "FLOATING SET-ASIDE" HAS BEEN ACCEPTED BY THE PETROLEUM INDUSTRY AND ITS USE BY MPSA IS KNOWN TO MEMBERS OF THE CONGRESSIONAL SMALL BUSINESS COMMITTEES, TO THE SMALL BUSINESS ADMINISTRATION AND TO REPRESENTATIVES OF GAO. FURTHER, BECAUSE MOST LARGE FIRMS OFFER PRODUCT ON AN F.O.B. ORIGIN BASIS, THEIR OFFERED PRODUCT IS IN EFFECT FLOATED TO ANOTHER ITEM AND TO THEM THE RESULT IS ESSENTIALLY THE SAME AS IF THERE HAD BEEN A FIRM SET-ASIDE. WHAT IS WRONG WITH CURRENT PROCEDURE

14. ASPR 1-706.6 (E) DOES NOT ENVISAGE THE SITUATION WHERE MULTIPLE AWARDS WOULD BE NECESSARY TO MEET GOVERNMENT'S REQUIREMENTS. WHEN MULTIPLE AWARDS AT VARIOUS PRICES ARE NECESSARY TO MEET THE REQUIREMENTS OF A SINGLE ITEM OR AREA, GOVERNMENT BENEFITS PRICE WISE FROM A SMALL BUSINESS SET-ASIDE. ENCLOSURE (1) PRESENTS A TYPICAL CASE WHEREIN THE SAVINGS TO GOVERNMENT DUE TO SET-ASIDE WOULD BE $37,400.00.

15. SMALL FIRMS HAVE STRENUOUSLY OBJECTED TO MEETING THE CUT-OFF PRICE REQUIRED BY ASPR 1-706.6 (E) AND HAVE ARGUED THAT THE GOVERNMENT COULDN-T FILL ITS REQUIREMENTS AT THE CUT-OFF PRICE THEREFORE GOVERNMENT WAS NOT BEING FAIR IN EXPECTING SMALL FIRMS TO MEET THAT CUT-OFF. IN SEPTEMBER 1958, BECAUSE THE CUT-OFF PRICE OF ?0874 WAS CONSIDERED TOO LOW, ALL SMALL FIRMS IN THE LOS ANGELES AREA REFUSED THE SET-ASIDE AT THAT PRICE. GOVERNMENT WOULD HAVE HAD TO PAY APPROXIMATELY $190,000.00 MORE FOR THE QUANTITY INVOLVED IF AWARDED UNDER THE SOLICITATION AND ABSENT A SET- ASIDE. BASED UPON A ONE-TIME DEVIATION FROM THE OFFICE OF NAVAL MATERIAL, MPSA SUCCESSFULLY NEGOTIATED THE SET-ASIDE AT THE WEIGHTED AVERAGE PRICE OF ?0896. HOW MPSA'S PROPOSED PROCEDURE WOULD WORK

16. MPSA'S PROPOSAL IS BASED ON THE PREMISE THAT GOVERNMENT SHOULD SEEK NO APPARENT SAVINGS FROM THE SET-ASIDE PROGRAM.

17. MPSA WOULD FIRST DETERMINE THE TOTAL COST OF THE FUEL FOR MULTIPLE AWARD ITEMS AS IF NO SET-ASIDE WERE INVOLVED. THIS WOULD BE DETERMINED BY AN EXAMINATION OF ALL THE BIDS RECEIVED ON THE ITEM IN RESPONSE TO THE SOLICITATION. SECOND, MPSA WOULD DETERMINE THE TOTAL QUANTITY AVAILABLE FROM SMALL REFINERS WHICH COULD BE OBTAINED ON A SET-ASIDE BASIS. THIRD, IN THE CASE OF A FLOATING SET-ASIDE, MPSA WOULD FLOAT A SET-ASIDE TO THE ITEM APPROXIMATELY EQUAL TO THE QUANTITY AVAILABLE FROM SMALL BUSINESS AND NOT AWARDABLE UNDER THE NONSET-ASIDE PORTION. FOURTH, MPSA WOULD DEDUCT THE COST OF ANY NONSET-ASIDE AWARDS FROM THE FIRST DETERMINED TOTAL COST. FIFTH, THE WEIGHTED AVERAGE COST OF THE SET-ASIDE QUANTITY WOULD BE DETERMINED BY DIVIDING THE REMAINDER OF THE TOTAL COST BY THE TOTAL SET- ASIDE GALLONS. THIS PROCEDURE IS ILLUSTRATED IN ENCLOSURE (1).

DEVIATION REQUESTED

19. IT IS REQUESTED THAT MPSA BE AUTHORIZED TO DEVIATE FROM THE REQUIREMENTS OF ASPR 1-706.6 (E) IN FAVOR OF THE "WEIGHTED AVERAGE" AND "STEP" PRICE APPROACH DESCRIBED HEREIN WHEN MULTIPLE AWARDS AT VARIOUS PRICES TO VARIOUS FIRMS WOULD BE NECESSARY TO COVER THE REQUIREMENTS OF A PARTICULAR ITEM OR AREA IF NO SET-ASIDE WERE MADE; PROVIDED, HOWEVER, THAT THE TOTAL COST OF THE REQUIREMENT WOULD NOT EXCEED WHAT IT WOULD HAVE BEEN ABSENT A SET-ASIDE.

QUESTIONS CONCERNING THE PROPRIETY OF THE PRICES AT WHICH CONTRACTS MAY BE AWARDED TO SMALL BUSINESS CONCERNS HAVE BEEN BEFORE THIS OFFICE ON A NUMBER OF OCCASIONS. IN 31 COMP. GEN. 347 WE HELD THAT CONTRACTS MAY BE AWARDED TO SMALL BUSINESS FIRMS BY NEGOTIATIONS, UNDER SECTION 2 (C) (1) OF THE ARMED SERVICES PROCUREMENT ACT OF 1947 UPON A PROPER DETERMINATION BY THE AGENCY HEAD THAT THE AWARD IS NECESSARY IN THE PUBLIC INTEREST OR WHEN SUCH ACTION IS SUPPORTED BY A DETERMINATION UNDER THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED, THAT THE AWARD IS IN THE INTEREST OF MOBILIZING THE NATION'S PRODUCTIVE CAPACITY OR THE NATIONAL DEFENSE PROGRAM, EVEN THOUGH BIDS ARE FIRST SOLICITED AND NEGOTIATION WITH A SMALL BUSINESS CONCERN RESULTS IN A HIGHER PRICE THAN OTHERWISE OBTAINABLE. THE DECISION REASONED THAT: * * * IF THE CONTRACTS HERE CONTEMPLATED PROPERLY MAY BE NEGOTIATED WITH SMALL BUSINESS FIRMS AT A HIGHER COST TO THE GOVERNMENT THAN IS OTHERWISE OBTAINABLE, THE FACT THAT BIDS ARE FIRST SOLICITED WOULD NOT PRECLUDE THE CONTRACTING AGENCY FROM NEGOTIATING THE CONTRACT WITH A SMALL BUSINESS CONCERN AT A HIGHER PRICE. IN THAT CONNECTION, IT WOULD APPEAR THAT IMPORTANT CONSIDERATIONS INDEED WOULD BE NECESSARY TO DETERMINE THAT THE PUBLIC INTEREST REQUIRES THE AWARD OF CONTRACTS TO SMALL BUSINESS CONCERNS WHEN IT IS KNOWN AT THE TIME THAT THE PROCUREMENT COULD BE MADE FROM OTHER SOURCES AT LESS COST TO THE GOVERNMENT. IN APPARENT RECOGNITION OF SUCH FACT, SECTION 714 (F) (2) OF THE DEFENSE PRODUCTION ACT OF 1950, AS AMENDED, 65 STAT. 143, PROVIDES THAT---

" THE CONGRESS HAS AS ITS POLICY THAT A FAIR PROPORTION OF THE TOTAL PURCHASES AND CONTRACTS FOR SUPPLIES AND SERVICES FOR THE GOVERNMENT SHALL BE PLACED WITH SMALL-BUSINESS CONCERNS. TO EFFECTUATE SUCH POLICY, SMALL- BUSINESS CONCERNS WITHIN THE MEANING OF THIS SECTION SHALL RECEIVE ANY AWARD OR CONTRACT OR ANY PART THEREOF AS TO WHICH IT IS DETERMINED BY THE ADMINISTRATION ( SMALL DEFENSE PLANTS ADMINISTRATION) AND THE CONTRACTING PROCUREMENT AGENCIES (A) TO BE IN THE INTEREST OF MOBILIZING THE NATION'S FULL PRODUCTIVE CAPACITY, OR (B) TO BE IN THE INTEREST OF THE NATIONAL DEFENSE PROGRAM, TO MAKE SUCH AWARD OR LET SUCH CONTRACT TO A SMALL- BUSINESS CONCERN.'

IN 31 COMP. GEN. 431 WE HELD THAT ALTHOUGH IT WOULD NOT BE LEGALLY PROPER FOR A PROCURING AGENCY TO ENTER INTO A CONTRACT WITH A SMALL BUSINESS CONCERN AT A HIGHER PRICE THAN OTHERWISE MIGHT HAVE BEEN OBTAINED IN INSTANCES WHERE ADVERTISING IS REQUIRED AND FORMAL BIDS ARE SOLICITED, WHERE JOINT DETERMINATIONS (SUCH AS UNDER SECTION 714 (F) (2) OF THE DEFENSE PRODUCTION ACT OF 1950), ARE MADE IN ADVANCE, THE PROCUREMENT MAY BE NEGOTIATED WITH SMALL BUSINESS CONCERNS AT HIGHER PRICES THAN OTHERWISE OBTAINABLE. FINALLY SEE 36 COMP. GEN. 187. THAT DECISION INVOLVED A PROCUREMENT OF JET FUEL, A PORTION OF WHICH WAS SET ASIDE FOR SMALL BUSINESS. THE INVITATION FOR BIDS CONTAINED A PROVISION WITH REGARD TO THE SMALL BUSINESS SET-ASIDE WHICH PROVIDED THAT:

THOSE BIDDERS WITH WHOM NEGOTIATION IS COMMENCED WILL BE OFFERED AN OPPORTUNITY TO MEET A FAIR AND REASONABLE PRICE AS DETERMINED BY THE CONTRACTING OFFICER. SUCH DETERMINATION SHALL BE MADE ON THE BASIS OF THE WEIGHTED AVERAGE UNIT PRICE OF THE INITIAL AWARDS MADE UNDER THE UNRESERVED PORTION IN THE VARIOUS GEOGRAPHIC MARKETING AREAS.

IT WAS REPORTED THAT IT APPEARED IMPROBABLE THAT SMALL CONCERNS WOULD BE ABLE TO PARTICIPATE IN THE AWARD OF THAT PORTION RESERVED FOR SMALL BUSINESS AT A PRICE EQUAL TO OR LESS THAN THE WEIGHTED AVERAGE UNIT PRICE OF THE INITIAL AWARDS ON THE UNRESERVED PORTION. IN OTHER WORDS, SMALL BUSINESS CONCERNS WOULD NOT BE ABLE TO PARTICIPATE UNLESS THEY RECEIVED A PRICE IN EXCESS OF THE WEIGHTED AVERAGE UNIT PRICE OF THE AWARDS MADE ON THE NON-SET-ASIDE PORTION. UNDER THESE CIRCUMSTANCES, THE SMALL BUSINESS ADMINISTRATION REQUESTED OUR OPINION AS TO THE DISCRETION ACCORDED THE PROCUREMENT AGENCY TO ESTABLISH A FAIR AND REASONABLE PRICE IN THE NEGOTIATION OF CERTAIN CONTRACTS WITH SMALL BUSINESS CONCERNS AND, MORE SPECIFICALLY, WHETHER AWARDS COULD BE MADE ON THE SET-ASIDE PORTION AT PRICE NOT IN EXCESS OF THE HIGHEST UNIT PRICE AWARDED UNDER THE NON-SET- ASIDE PORTION. IN REACHING OUR DECISION THAT WE WOULD NOT OBJECT TO AWARDS TO SMALL BUSINESS CONCERNS "AT PRICES NOT IN EXCESS OF THE NEXT- HIGHER BID ON THE UNRESERVED PORTION FOR THE SAME USING ACTIVITY," THE FOLLOWING COMMENTS WERE MADE:

IN INTERPRETING SECTION 2 (B) OF THE ARMED SERVICES PROCUREMENT ACT OF 1957, 62 STAT. 21, 41 U.S.C. 151 (B), WE HELD IN 31 COMP. GEN. 347, THAT WHERE NEGOTIATING AUTHORITY EXISTS PURSUANT TO PROVISIONS SUCH AS CONTAINED IN SECTION 2 (C) (1) OF THE ARMED SERVICE PROCUREMENT ACT OF 1947, 62 STAT. 21, 41 U.S.C. 151 (C) (1), CONTRACTS MAY BE NEGOTIATED WITH SMALL BUSINESS FIRMS AT A HIGHER COST TO THE GOVERNMENT THAN IS OTHERWISE OBTAINABLE. IN VIEW OF THE SUBSTANTIAL SIMILARITY BETWEEN SECTION 2 (B) OF THE ARMED SERVICES PROCUREMENT ACT AND SECTION 214 OF THE SMALL BUSINESS ACT, WE SEE NO REASON WHY OUR CONCLUSION SHOULD DIFFER IN THIS CASE. IN OTHER WORDS, SO FAR AS THE STATUTE IS CONCERNED, WE FIND NO REQUIREMENT THAT AWARDS NEGOTIATED WITH SMALL BUSINESS CONCERNS MUST BE LIMITED TO THE WEIGHTED AVERAGE OF OTHER AWARDS MADE OF THE UNRESERVED PORTION OF THE SUBJECT PROCUREMENT.

WHILE WE SEE NO COMPELLING REASON IN THE STATUTES FOR REQUIRING THAT AWARDS FOR PARTIAL SET-ASIDES BE MADE ONLY BY NEGOTIATION * * * OR FOR REQUIRING SUCH AWARDS TO BE MADE AT HIGHER PRICES THAN THOSE AT WHICH AWARDS MAY BE MADE FOR UNRESERVED PORTIONS OF THE SAME PROCUREMENT, THERE APPEARS TO BE NO BASIS ON WHICH WE MAY PROPERLY OBJECT TO SUCH REQUIREMENTS, SINCE THE NEGOTIATING AUTHORITY GENERALLY IS VESTED IN THE HEADS OF THE MILITARY DEPARTMENTS, AND THE AUTHORITY TO EFFECTUATE THE PURPOSES OF THE SMALL BUSINESS ACT IS LEFT PRIMARILY TO THE JOINT ACTION OF YOUR AGENCY AND THE PROCURING AGENCIES.

WHETHER ANY AWARDS SHOULD BE MADE OF THE SET-ASIDE PORTION AT PRICES IN EXCESS OF THE "FAIR AND REASONABLE" PRICE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH THE TERMS OF THE INVITATION IS A MATTER TO BE RESOLVED BY THE PROCURING AUTHORITY IN THE LIGHT OF THE PERTINENT REGULATIONS AND DIRECTIVES, BUT SO FAR AS THIS OFFICE IS CONCERNED WE WOULD NOT OBJECT TO ANY SUCH AWARDS AT PRICES NOT IN EXCESS OF THE NEXT- HIGHER BID ON THE UNRESERVED PORTION FOR THE SAME USING ACTIVITY.

THE UNIT PRICES AT WHICH AWARDS WERE MADE TO DEBCO CORPORATION AND PETROLEUM REFINING COMPANY ON THE SET-ASIDE PORTION OF THE PROCUREMENT EXCEEDED THE UNIT PRICE OF THE AWARD MADE TO PREMIER OIL AND REFINING COMPANY ON THE NON-SET-ASIDE PORTION. IT IS TRUE AS ALLEGED BY COSDEN'S ATTORNEYS THAT HAD THERE BEEN NO SET-ASIDE PLACED ON ITEM AF 128, OR HAD THERE BEEN A SET-ASIDE OF LESS THAN 2,000,000 GALLONS PLACED ON THAT ITEM, COSDEN'S PRICE WOULD HAVE BEEN LOW AND AWARD OF THE NON-SET-ASIDE PORTION WOULD HAVE BEEN REQUIRED TO BE MADE TO THAT FIRM UNDER THE USUAL PROCEDURES OF FORMALLY ADVERTISED BIDDING. HOWEVER, BECAUSE A SET-ASIDE IN EXCESS OF 2,000,000 GALLONS WAS ACTUALLY PLACED ON THE ITEM, COSDEN'S PRICE WAS NO LONGER AVAILABLE FOR CONSIDERATION ON THE NON-SET-ASIDE PORTION SINCE, BY VIRTUE OF THE QUALIFICATION IN ITS BID, IT THEN EXCEEDED THE $0.098406 PER UNIT PRICE OF PREMIER. THUS IT MUST BE CONCLUDED THAT SO FAR AS THE AWARD ON THE NON-SET-ASIDE PORTION IS CONCERNED, PREMIER'S BID ON THAT PORTION WAS PROPERLY ACCEPTED AS THE LOWEST RESPONSIVE BID.

UNDER THE TERMS OF THE PROCEDURE OUTLINED IN PARAGRAPH 17 OF YOUR STATEMENT QUOTED ABOVE THE PRICE AT WHICH AWARDS SHALL BE MADE TO SMALL BUSINESS CONCERNS IS DETERMINED WITHOUT REFERENCE TO THE PRICE OR PRICES AT WHICH AWARDS ARE MADE ON THE NON-SET-ASIDE PORTION. IN THE INSTANT CASE, THE AWARDS TO DEBCO AND PETROLEUM REFINING AT THE PRICE OF $0.09881 PER UNIT DID NOT RESULT IN HIGHER COST TO THE GOVERNMENT THAN OTHERWISE AVAILABLE FROM COSDEN WHOSE PRICE FOR QUANTITIES OF LESS THAN 17,000,000 GALLONS WAS $0.099 PER UNIT. IN ANY EVENT, HOWEVER, IN VIEW OF OUR DECISIONS IN 31 COMP. GEN. 347, ID. 431, AND 36 ID. 187, THIS OFFICE HAS NO BASIS FOR OBJECTING TO THE NEGOTIATION OF CONTRACTS WITH SMALL BUSINESS CONCERNS AT HIGHER PRICES THAN ARE OTHERWISE AVAILABLE FROM LARGE BUSINESS CONCERNS WHO HAVE SUBMITTED BIDS ON THE FORMALLY ADVERTISED PORTION OF A PROCUREMENT. ALSO, IN VIEW OF THE DISCRETIONARY NEGOTIATING AUTHORITY VESTED IN YOUR AGENCY AND THE BLANKET AUTHORITY GRANTED BY THE ASPR COMMITTEE TO DEVIATE FROM THE REQUIREMENTS OF ASPR 1-706.6 (E), WE DO NOT OBJECT TO THE FORMULA OUTLINED IN PARAGRAPH 17 OF YOUR STATEMENT FOR DETERMINING THE PRICES AT WHICH TO AWARD CONTRACTS TO SMALL BUSINESS CONCERNS ON A SET-ASIDE SO LONG AS THE TOTAL COST OF THE REQUIREMENT, AS EXPRESSED IN PARAGRAPH 19 OF YOUR STATEMENT, WOULD NOT EXCEED WHAT IT WOULD HAVE BEEN ABSENT A SET-ASIDE.

WE DO NOT BELIEVE, HOWEVER, THAT THE APPROVED DEVIATION PROCEDURE WAS APPLICABLE TO THE INSTANT CASE. THE STATEMENT OF MPSA SUPPORTING THE REQUEST FOR DEVIATION FROM ASPR 1-706.6 (E) INDICATES THAT THE PROCEDURE WAS TO BE USED WHEN MULTIPLE AWARDS FOR JET FUELS AT VARIOUS PRICES TO VARIOUS CONCERNS WOULD HAVE BEEN NECESSARY HAD THERE BEEN NO SET-ASIDE TO COVER THE REQUIREMENTS OF THE ARMED SERVICES FOR A PARTICULAR ITEM. HERE, COSDEN OFFERED TO SUPPLY THE ENTIRE QUANTITY OF ITEM 128 AND, CONSEQUENTLY, MULTIPLE AWARDS WOULD NOT HAVE BEEN NECESSARY HAD THERE BEEN NO SET-ASIDE FOR SMALL BUSINESS CONCERNS. ACCORDINGLY, SINCE THE PRICE AT WHICH AWARDS WERE MADE TO DEBCO AND PETROLEUM REFINING IS IN EXCESS OF THE PRICE AGREED TO BE PAID TO PREMIER OIL AND REFINING, WE BELIEVE A DOWNWARD ADJUSTMENT IN PRICE WITH THOSE TWO CONCERNS WOULD BE APPROPRIATE.

TURNING NOW TO THE QUESTION WHETHER THE "FLOATING SET-ASIDE" PROCEDURE IS LEGALLY AUTHORIZED, YOUR LETTER OF AUGUST 30, 1961, STATES THAT THIS FEATURE OF THE SET-ASIDE IS PECULIAR TO THE SEMIANNUAL JET FUEL PROCUREMENT OF YOUR AGENCY AND THAT THE TWO ALTERNATIVES TO THE "FLOATING SET-ASIDE" PROCEDURE ARE NOT FEASIBLE FOR THE REASONS, AS OUTLINED IN YOUR LETTER, AS FOLLOWS:

THE FIRST ALTERNATIVE, TO SPECIFICALLY INDICATE SET-ASIDE QUANTITIES ON EACH ITEM IN THE INVITATION FOR BIDS, IS NOT FEASIBLE BECAUSE THE QUANTITIES WHICH WILL BE OFFERED BY SMALL BUSINESS ARE NOT KNOWN IN ADVANCE OF THE PROCUREMENT. IN ADDITION, THE SPECIFIC LOCATIONS AT WHICH SMALL BUSINESS WILL OFFER PRODUCT IS NOT KNOWN IN ADVANCE OF THE PROCUREMENT. THEREFORE, TO ATTEMPT TO PINPOINT THE SET-ASIDE QUANTITIES BY ITEM, IN ADVANCE, WOULD INEVITABLY RESULT IN A SUBSTANTIAL REDUCTION IN THE QUANTITY AWARDED TO SMALL BUSINESS. ON THE OTHER HAND, IF THE QUANTITY SET-ASIDE WAS INCREASED TO ASSURE ESSENTIALLY THE SAME LEVEL OF AWARDS TO SMALL BUSINESS AS IS CURRENTLY MADE, THE CUTOFF PRICE/S) AT WHICH SET-ASIDE AWARDS WOULD BE AVAILABLE TO SMALL BUSINESS WOULD BE SUBSTANTIALLY LOWER BECAUSE LARGE BUSINESS WOULD BE COMPETING FOR A SMALLER UNRESERVED PORTION. FEWER MULTIPLE AWARDS WOULD HAVE TO BE MADE TO COVER THE LESSER UNRESTRICTED PORTION.

THE OTHER ALTERNATIVE, TOTAL SET-ASIDES FOR SMALL BUSINESS ON CERTAIN SELECTED ITEMS, IS ALSO NOT FEASIBLE. THERE ARE MANY AREAS WHERE THERE IS INSUFFICIENT COMPETITION AMONG THE SMALL BUSINESS CONCERNS TO SUPPORT A TOTAL SET-ASIDE. THE ONLY ELEMENT OF COMPETITION IN SUCH AREAS COMES FROM LARGE BUSINESS. IN ADDITION, THE UTILIZATION OF TOTAL SET-ASIDES WOULD AGAIN RESULT IN A SUBSTANTIAL REDUCTION IN THE QUANTITY AWARDED TO SMALL BUSINESS. SINCE A COMPETITIVE SITUATION IS REQUIRED, THE QUANTITY SET- ASIDE WOULD HAVE TO BE SUBSTANTIALLY REDUCED.

ON THE OTHER HAND IT HAS BEEN REPORTED TO THIS OFFICE THAT THE "FLOATING SET-ASIDE" PROCEDURE HAS BEEN EMPLOYED BY YOUR AGENCY SINCE JUNE OF 1956 AND THAT ALTHOUGH IT WOULD BE EXTREMELY DIFFICULT TO SPECIFICALLY INDICATE SET-ASIDE QUANTITIES ON EACH ITEM IN ADVANCE OF BID OPENING, THIS COULD BE ACCOMPLISHED.

AN INVITATION FOR BIDS CONTAINING, AS IN THIS CASE, A PARTIAL SMALL BUSINESS SET-ASIDE INVOLVES TWO SEPARATE AND DISTINCT PROCUREMENT PROCEDURES. AWARDS OF CONTRACTS ON THE NON-SET-ASIDE PORTION ARE MADE IN ACCORDANCE WITH FORMAL ADVERTISING PROCEDURES WHILE AWARDS ON THE SET- ASIDE PORTION ARE ACCOMPLISHED THROUGH NEGOTIATION PROCEDURES. WHILE IT MAY BE ARGUED THAT THE "FLOATING SET-ASIDE" IS ONLY A PART OF NEGOTIATION PROCEDURE AND, THUS, OF NO CONCERN TO LARGE BUSINESS CONCERNS BIDDING UPON THE NON-SET-ASIDE PORTION, IT CANNOT BE DENIED THAT THE "FLOATING SET- ASIDE" PRINCIPLE UNDER WHICH THE SET-ASIDE IS FIXED AFTER BIDS ARE OPENED ON THE NON-SET-ASIDE PORTION, HAS A DIRECT AND SUBSTANTIAL IMPACT UPON THE FORMALLY ADVERTISED PORTION OF THE PROCUREMENT. THE "FLOATING SET-ASIDE" PROCEDURE IS USED TO DETERMINE THE QUANTITY TO BE SET ASIDE FOR SMALL BUSINESS PARTICIPATION, BUT AT THE SAME TIME, IT ALSO FIXES THE QUANTITY AVAILABLE FOR AWARD UNDER FORMAL ADVERTISING PRINCIPLES.

IN FORMALLY ADVERTISED PROCUREMENTS BIDDERS MUST BE GIVEN AN OPPORTUNITY TO BID UPON A COMMON BASIS AND UNLESS THE SPECIFICATIONS UPON WHICH BIDDERS SUBMIT BIDS ARE CLEAR AND DEFINITE THERE WILL BE NO EFFECTIVE COMPETITION. AS A GENERAL RULE, THEREFORE, ADVERTISED SPECIFICATIONS MUST BE SUFFICIENTLY DETAILED, DEFINITE AND PRECISE UPON ALL THE ESSENTIAL ELEMENTS THAT ENTER INTO THE CONTRACTS SO AS TO AFFORD A BASIS FOR FULL AND FAIR COMPETITIVE BIDDING UPON A COMMON STANDARD. 43 AM. JUR., PUBLIC WORKS AND CONTRACTS, SECTION 36, 36 COMP. GEN. 311. 17 ID. 789, 11 ID. 220.

IN THE PRESENT INVITATION FOR BIDS, BIDDERS WERE PUT ON NOTICE THAT A MAXIMUM QUANTITY OF 6,000,000 BARRELS OF JET FUEL WOULD BE SET ASIDE BUT THAT SPECIFIC QUANTITY ALLOCATIONS OF THE SET-ASIDE BY GEOGRAPHIC AREA AND SPECIFIC ITEMS WOULD BE FIXED AFTER RECEIPT OF BIDS. UNDER THIS NOTICE ALL BIDDERS WERE INFORMED OF THE PROCEDURE THAT WOULD BE UTILIZED IN DETERMINING THE QUANTITY AVAILABLE FOR LARGE BUSINESS PARTICIPATION AND, IN THAT SENSE, THEY COULD BE SAID TO BE BIDDING UPON A COMMON BASIS--- BUT IT IS BIDDING ON A COMMON BASIS IN THE DARK. A NOTICE TO THE EFFECT THAT A CERTAIN NUMBER OF BARRELS OF FUEL IS SET ASIDE ON A NATION-WIDE BASIS WITH A FURTHER BREAKDOWN OF THE SET-ASIDE ON A LOCAL BASIS, SUCH BREAKDOWN TO BE DETERMINED AFTER BIDS ARE OPENED, HAS VERY LITTLE MEANING OR RELEVANCE TO BIDDERS SUBMITTING BIDS ON A LOCAL BASIS ONLY. THE QUANTITY REQUIRED TO BE FURNISHED IS ONE OF THE MOST IMPORTANT ELEMENTS IN AN INVITATION FOR BIDS AND WITHOUT ADVANCE KNOWLEDGE OF THE QUANTITIES REQUIRED IT IS DIFFICULT TO IMAGINE HOW BIDDERS CAN SUBMIT TRULY COMPETITIVE AND INTELLIGENT BIDS. IT IS ALSO A CARDINAL REQUIREMENT IN FORMALLY ADVERTISED PROCUREMENTS THAT BIDDERS BE NOTIFIED IN ADVANCE OF THE BASIS ON WHICH THEIR BIDS WILL BE EVALUATED. B-128405, SEPTEMBER 17, 1956, AND B-120741, MARCH 17, 1955. IN 36 COMP. GEN. 380 IT WAS STATED THAT THE BASIS OF EVALUATION WHICH MUST BE MADE KNOWN IN ADVANCE TO BIDDERS SHOULD BE: * * * AS CLEAR, PRECISE AND EXACT AS POSSIBLE. IDEALLY, IT WHOULD BE CAPABLE OF BEING STATED AS A MATHEMATICAL EQUATION. IN MANY CASES, HOWEVER, THAT IS NOT POSSIBLE. AT THE MINIMUM, THE ,BASIS" MUST BE STATED WITH SUFFICIENT CLARITY AND EXACTNESS TO INFORM EACH BIDDER PRIOR TO BID OPENING, NO MATTER HOW VARIED THE ACCEPTABLE RESPONSES, OF OBJECTIVELY DETERMINABLE FACTORS FROM WHICH THE BIDDER MAY ESTIMATE WITHIN REASONABLE LIMITS THE EFFECT OF THE APPLICATION OF SUCH EVALUATION FACTOR ON HIS BID IN RELATION TO OTHER POSSIBLE BIDS. BY THE TERM "OBJECTIVELY DETERMINABLE FACTORS" WE MEAN FACTORS WHICH ARE MADE KNOWN TO OR WHICH CAN BE ASCERTAINED BY THE BIDDER AT THE TIME HIS BID IS BEING PREPARED. FACTORS WHICH ARE BASED ENTIRELY OR LARGELY ON A SUBJECTIVE DETERMINATION TO BE ANNOUNCED BY REPRESENTATIVES OF THE CONTRACTING AGENCY AT THE TIME OF OR SUBSEQUENT TO THE OPENING OF BIDS VIOLATE THE PRINCIPLE FOR THE REASON THAT THEY ARE NOT DETERMINABLE BY THE BIDDER AT THE TIME HIS BID IS BEING PREPARED.

OBVIOUSLY, THE QUANTITY OF PRODUCT AVAILABLE FOR AWARD UNDER FORMAL ADVERTISING IS A FACTOR WHICH MUST BE MADE KNOWN IN ADVANCE IF BIDDERS ARE TO BE ABLE TO PREPARE INTELLIGENT BIDS AND TO ESTIMATE THE EFFECT OF SUCH FACTOR ON THEIR BIDS IN RELATION TO POSSIBLE BIDS FROM COMPETITORS. THE "FLOATING SET-ASIDE" PROCEDURE VIOLATES THE RULE SINCE, FROM THE RECORD BEFORE US, IT APPEARS THAT THE DETERMINATION OF THE QUANTITY TO BE SET ASIDE FOR SMALL BUSINESS IS BASED LARGELY ON ARBITRARY AND SUBJECTIVE CRITERIA, THE CHIEF GUIDE TO THE CONTRACTING OFFICER IN MAKING THE DETERMINATION BEING THE QUANTITIES ACTUALLY OFFERED BY SMALL BUSINESS CONCERNS WHICH ARE NOT KNOWN UNTIL BIDS ARE OPENED. SUCH A PROCEDURE IS ALSO INIMICAL TO THE INTERESTS OF SOUND, ORDERLY PROCUREMENT AND LEAVES THE CONTRACTING OFFICER OPEN TO CHARGES OF FAVORITISM, COLLUSION AND ARBITRARY ACTION WHETHER THOSE CHARGES ARE BASED ON FACT OR NOT. SEE 13 COMP. GEN. 284 AND 18 ID. 641. SUCH CHARGES, IN TURN, IMPAIR PUBLIC CONFIDENCE IN THE COMPETITIVE BIDDING SYSTEM.

AS NOTED PREVIOUSLY THE "FLOATING SET-ASIDE" PROCEDURE HAS BEEN IN OPERATION SINCE AT LEAST JUNE OF 1956, A PERIOD OF OVER 5 YEARS. IT WOULD SEEM REASONABLE TO CONCLUDE THAT IN SUCH A PERIOD OF TIME YOUR AGENCY HAS ACQUIRED SOME DEGREE OF KNOWLEDGE AND EXPERIENCE ON SMALL BUSINESS CAPABILITIES AND AVERAGE OFFERINGS OF FUEL AT THE VARIOUS LOCATIONS JET FUEL IS PROCURED OVER THE COUNTRY. A REASONABLY ACCURATE ADVANCE DETERMINATION AS TO THE SPECIFIC QUANTITIES AT SPECIFIC LOCATIONS THAT WILL BE OFFERED BY SMALL BUSINESS CONCERNS WOULD APPEAR TO BE WITHIN THE CAPABILITIES OF YOUR AGENCY PERSONNEL NO MATTER HOW DIFFICULT SUCH DETERMINATIONS MIGHT PROVE TO BE. IN ANY EVENT, HOWEVER, IT SHOULD BE NOTED THAT ONE OF THE PRINCIPAL PURPOSES OF THE FORMAL ADVERTISING MACHINERY IS TO SECURE FOR THE GOVERNMENT ITS MINIMUM NEEDS AT THE LOWEST COST POSSIBLE. YOU STATE THAT IF, UNDER A PREDETERMINED PROCEDURE, THE QUANTITY SET ASIDE WAS INCREASED TO ASSURE ESSENTIALLY THE SAME LEVEL OF AWARDS TO SMALL BUSINESS AS IS CURRENTLY MADE, THE CUTOFF PRICES AT WHICH SET-ASIDE AWARDS WOULD BE AVAILABLE TO SMALL BUSINESS WOULD BE SUBSTANTIALLY LOWER BECAUSE LARGE BUSINESS CONCERNS WOULD BE COMPETING FOR A SMALLER UNRESERVED PORTION. EVEN THOUGH THE ACCURACY OF SUCH CONTENTION MAY BE DEMONSTRABLE ( COSDEN, HOWEVER, STATES THAT LARGER QUANTITIES OF PRODUCT CAN USUALLY BE PROVIDED AT LOWER UNIT COST THAN SMALLER QUANTITIES), WE FIND NOTHING IN THE SMALL BUSINESS ACT REQUIRING THE CONCLUSION THAT SMALL BUSINESS CONCERNS ARE TO BE AWARDED CONTRACTS UNDER A PROCEDURE INHERENTLY DESTRUCTIVE OF THE COMPETITIVE BIDDING SYSTEM WHICH SYSTEM HAS, AT LEAST, AN EQUAL CLAIM TO PRESERVATION.

IN VIEW OF THE FACT THAT CONTRACTS ALREADY AWARDED ARE FOR PERIODS OF ONLY 6 MONTHS AND DELIVERIES HAVE BEGUN, WE DO NOT FEEL THAT IT WOULD BE IN THE GOVERNMENT'S INTEREST OR THAT IT WOULD SERVE ANY USEFUL PURPOSE TO REQUIRE CANCELLATION OF THE AWARDS AS MADE. HOWEVER, WE SUGGEST THAT PROPER STEPS BE TAKEN TO INSURE THAT FUTURE INVITATIONS FOR BIDS ISSUED BY YOUR AGENCY DO NOT CONTAIN THE OBJECTIONABLE "FLOATING SET-ASIDE" FEATURE.