B-147402, NOVEMBER 7, 1961, 41 COMP. GEN. 302

B-147402, NOVEMBER 7, 1961, 41 COMP. GEN. 302

BIDDERS - QUALIFICATIONS - TIME FOR DETERMINATION--- CONTRACTS - AWARDS LABOR SURPLUS AREAS--- BIDS - DISCARDING ALL BIDS - ADMINISTRATIVE DETERMINATION A LOW BIDDER WHO DID NOT QUALIFY AS A RESPONSIBLE BIDDER AT THE TIME AN AWARD WAS MADE ON THE ADVERTISED NON-SET-ASIDE PORTION OF A MILITARY PROCUREMENT, OR AT THE TIME THE NEGOTIATIONS ON THE LABOR SURPLUS AREA SET -ASIDE PORTION WERE BEGUN, BUT WHO WAS ISSUED A CERTIFICATE OF COMPETENCY BY THE SMALL BUSINESS ADMINISTRATION PRIOR TO AWARD OF THE SET-ASIDE SHOULD HAVE HIS RESPONSIBILITY DETERMINED AT THE TIME OF AWARD OF THE SET- ASIDE; THEREFORE, ON THE BASIS OF THE CERTIFICATION HE IS A RESPONSIBLE BIDDER AND NEGOTIATIONS FOR THE SET-ASIDE SHOULD BE CONDUCTED WITH HIM. TO OFFER THE SET-ASIDE PORTION OF A MILITARY PROCUREMENT ON THE BASIS OF THE HIGHEST UNIT PRICE AWARDED FOR THE NON-SET-ASIDE PORTION TO A BIDDER WHO, ALTHOUGH HE SUBMITTED A BID SUBSTANTIALLY LESS THAT THAT OF THE SUCCESSFUL BIDDER ON THE NON-SET-ASIDE PORTION, WAS DENIED AWARD BECAUSE OF NONRESPONSIBILITY BUT WHO, PRIOR TO AWARD OF THE SET ASIDE PORTION, WAS ISSUED A SMALL BUSINESS CERTIFICATE OF COMPETENCY, WOULD BE TO MAKE AN AWARD WHICH WOULD NOT BE TO THE ADVANTAGE OF THE GOVERNMENT; THEREFORE, IN VIEW OF THE PROHIBITION IN SECTION 623 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1962, 75 STAT. 379, AGAINST USE OF APPROPRIATED FUNDS FOR PRICE DIFFERENTIAL PAYMENTS ON ACCOUNT OF LABOR SURPLUS AWARDS, WHICH IS CONSTRUED AS ALSO PROHIBITING PAYMENT TO A BIDDER IN A LABOR SURPLUS AREA OF A PRICE GREATER THAN THE PRICE OFFERED BY SUCH BIDDER, THE PRICE QUOTED BY THE LOW BIDDER ON THE NON SET-ASIDE PORTION MUST BE REGARDED AS THE CEILING ON ANY AWARD UNDER THE SET-ASIDE PORTION. THE WITHDRAWAL OF THE SET-ASIDE PORTION OF A MILITARY PROCUREMENT AFTER AN AWARD OF THE NON-SET-ASIDE PORTION WAS MADE AND THE ISSUANCE OF A NEW INVITATION WITH A 50 PERCENT LABOR SURPLUS SET-ASIDE TO INCORPORATE AN ADDITIONAL QUANTITY REQUIREMENT AS WELL AS THE QUANTITY IN THE WITHDRAWN SET-ASIDE INVITATION IS A MATTER FOR ADMINISTRATIVE DETERMINATION PROVIDED THAT SUCH ACTION IS DETERMINED TO BE IN THE BEST INTERESTS OF THE GOVERNMENT.

TO THE SECRETARY OF THE AIR FORCE, NOVEMBER 7, 1961:

BY LETTER OF OCTOBER 12, 1961, SIGNED BY THE DEPUTY FOR PROCUREMENT AND PRODUCTION, OUR ADVICE HAS BEEN REQUESTED ON QUESTIONS ARISING OUT OF A LABOR SURPLUS SET-ASIDE UNDER INVITATION FOR BIDS NO. 30-635-61 692 ISSUED APRIL 14, 1961, BY THE ROME AIR MATERIEL AREA FOR PROCUREMENT OF CW-413 RADOMES AND MK-530 ERECTION OUTFITS; APPROXIMATELY 50 PERCENT OF THE REQUIREMENT TO BE AWARDED PURSUANT TO COMPETITIVE BIDDING, AND THE REMAINDER TO BE NEGOTIATED UNDER THE TERMS OF ARTICLE 23 OF THE INVITATION READING AS FOLLOWS:

A PORTION OF THIS PROCUREMENT, AS IDENTIFIED ELSEWHERE IN THE SCHEDULE, HAS BEEN SET ASIDE FOR AWARD ONLY TO ONE OR MORE LABOR SURPLUS AREA CONCERNS, AND, TO A LIMITED EXTENT, TO SMALL BUSINESS CONCERNS WHICH DO NOT QUALIFY AS LABOR SURPLUS AREA CONCERNS. NEGOTIATIONS FOR AWARD OF THE SET ASIDE PORTION WILL BE CONDUCTED ONLY WITH RESPONSIBLE LABOR SURPLUS AREA CONCERNS (AND SMALL BUSINESS CONCERNS TO THE EXTENT INDICATED BELOW) WHO HAVE SUBMITTED RESPONSIVE BIDS OR PROPOSALS ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE WITHIN 120 PERCENT OF THE HIGHEST AWARD MADE ON THE NON-SET-ASIDE PORTION. NEGOTIATIONS FOR THE SET ASIDE PORTION WILL BE CONDUCTED WITH SUCH BIDDERS IN THE FOLLOWING ORDER OF PRIORITY:

GROUP 1. PERSISTENT LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO SMALL

BUSINESS CONCERNS.

GROUP 2. OTHER PERSISTENT LABOR SURPLUS AREA CONCERNS.

GROUP 3. SUBSTANTIAL LABOR SURPLUS AREA CONCERNS WHICH ARE ALSO

SMALL BUSINESS CONCERNS.

GROUP 4. OTHER SUBSTANTIAL LABOR SURPLUS AREA CONCERNS.

GROUP 5. SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS AREA

CONCERNS.

WITHIN EACH OF THE ABOVE GROUPS, NEGOTIATIONS WITH SUCH CONCERNS WILL BE IN THE ORDER OF THEIR BIDS ON THE NON-SET-ASIDE PORTION, BEGINNING WITH THE LOWEST RESPONSIVE BIDS. THE SET ASIDE SHALL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED ON THE NON-SET-ASIDE PORTION, ADJUSTED TO REFLECT TRANSPORTATION AND OTHER COST FACTORS WHICH WERE CONSIDERED IN EVALUATING BIDS ON THE NON-SET-ASIDE PORTION. HOWEVER, THE GOVERNMENT RESERVES THE RIGHT NOT TO CONSIDER TOKEN BIDS OR OTHER DEVICES DESIGNED TO SECURE AN UNFAIR ADVANTAGE OVER OTHER BIDDERS ELIGIBLE FOR THE SET ASIDE PORTION. (1) A "LABOR SURPLUS AREA" IS A GEOGRAPHICAL AREA WHICH AT THE TIME OF AWARD IS (I) CLASSIFIED BY THE DEPT. OF LABOR AS AN " AREA OF SUBSTANTIAL LABOR SURPLUS" OR AN " AREA OF SUBSTANTIAL AND PERSISTENT LABOR SURPLUS" AND ENLISTED AS SUCH BY THAT DEPT. IN CONJUNCTION WITH ITS BIMONTHLY PUBLICATION " AREA LABOR MARKET TRENDS; " OR (II) NOT CLASSIFIED AS IN (I) ABOVE, BUT WHICH IS INDIVIDUALLY CERTIFIED AS AN AREA OF PERSISTENT OR SUBSTANTIAL LABOR SURPLUS BY THE DEPARTMENT OF LABOR AT THE REQUEST OF ANY PROSPECTIVE CONTRACTOR.

(2) LABOR SURPLUS AREA CONCERN INCLUDES---

(I) PERSISTENT LABOR SURPLUS AREA CONCERNS WHICH WILL PERFORM OR CAUSE TO BE PERFORMED ANY CONTRACT AWARDED TO THEM AS LABOR SURPLUS AREA CONCERNS SUBSTANTIALLY IN " AREAS OF SUBSTANTIAL AND PERSISTENT LABOR SURPLUS; " AND

(II) SUBSTANTIAL LABOR SURPLUS AREA CONCERNS WHICH WILL PERFORM OR CAUSE TO BE PERFORMED ANY CONTRACTS AWARDED TO THEM AS LABOR SURPLUS AREA CONCERN SUBSTANTIALLY IN " AREAS OF SUBSTANTIAL LABOR SURPLUS.'

BIDS WERE OPENED ON MAY 18, 1961. THE LOW BIDDER ON THE NON-SET ASIDE, AT A TOTAL PRICE OF $358,900 PLUS TRANSPORTATION, WAS SEAL VIEW PLASTICS, INC., A SMALL BUSINESS IN A FIRST PRIORITY LABOR SURPLUS AREA. THE SURVEY REPORT OF THE LOW BIDDER'S CAPABILITY WAS NEGATIVE, HOWEVER, AND AFTER THE SMALL BUSINESS ADMINISTRATION DECLINED TO ISSUE A CERTIFICATE OF COMPETENCY THE LOW BID WAS REJECTED FOR LACK OF RESPONSIBILITY. THE ADVERTISED PORTION OF THE PROCUREMENT WAS AWARDED ON JULY 14, 1961, TO THE NEXT LOW BIDDER INCLUDING TRANSPORTATION CONSIDERATIONS, LONG SAULTE WOODCRAFT, LTD., A CANADIAN FIRM NOT ELIGIBLE FOR PARTICIPATION IN THE SET -ASIDE.

BECAUSE OF THE DETERMINATION OF NONRESPONSIBILITY, SEAL VIEW PLASTICS WAS ORIGINALLY NOT INCLUDED IN THE NEGOTIATIONS FOR AWARD OF THE SET-ASIDE PORTION. A SECOND SURVEY OF THE LOW BIDDER'S CAPABILITIES COMPLETED AUGUST 24, 1961, REAFFIRMED THE INITIAL CONCLUSION. HOWEVER, THE SMALL BUSINESS ADMINISTRATION ISSUED A CERTIFICATE OF COMPETENCY TO SEAL VIEW PLASTICS ON SEPTEMBER 13, 1961, BASED, WE HAVE BEEN INFORMALLY ADVISED, ON THE BIDDER'S INTENTION TO ADOPT A PROVEN METHOD OF MANUFACTURE OTHER THAN THE ONE HE ORIGINALLY CONTEMPLATED USING.

THE FIRST QUESTION POSED IS WHETHER, UNDER THE CIRCUMSTANCES, THE PROCURING AGENCY IS REQUIRED TO NEGOTIATE A CONTRACT WITH SEAL VIEW PLASTICS ON THE SET-ASIDE PORTION.

THE AWARD OF THE SET-ASIDE IS, OF COURSE, MADE PURSUANT TO NEGOTIATION AND THE CONTRACTING AGENCY HAS GREATER DISCRETION IN THE MATTER THAN WOULD BE THE CASE UNDER FORMAL ADVERTISING. SEE B-135873, JULY 29, 1958; B- 135964, JULY 8, 1958. IT APPEARS THAT BUT FOR THE DETERMINATION OF NONRESPONSIBILITY THE LOW BIDDER WOULD HAVE INITIALLY QUALIFIED FOR PARTICIPATION IN BOTH PORTIONS OF THE PROCUREMENT. THE ISSUANCE BY THE SMALL BUSINESS ADMINISTRATION OF A CERTIFICATE OF COMPETENCY IS CONCLUSIVE ON THE PROCUREMENT OFFICERS OF THE GOVERNMENT PURSUANT TO SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, AS AMENDED, 15 U.S.C. 637 (B) (7). SEE 39 COMP. GEN. 868. THE SPECIFIC ISSUE RAISED, THEREFORE, IS WHETHER AN OTHERWISE RESPONSIVE BIDDER MAY BE BARRED FROM PARTICIPATION IN A LABOR SURPLUS AREA SET-ASIDE BECAUSE IT DID NOT QUALIFY AS RESPONSIBLE AT THE TIME AWARD WAS MADE ON THE ADVERTISED PORTION OF THE PROCUREMENT OR AT THE TIME NEGOTIATIONS FOR THE AWARD OF THE SET-ASIDE WERE BEGUN.

AS A GENERAL RULE, RESPONSIBILITY SHOULD BE MEASURED WITH RESPECT TO THE TIME OF AWARD RATHER THAN AN EARLIER TIME. 39 COMP. GEN. 655. SINCE THE LOW BIDDER, SEAL VIEW PLASTICS, WAS QUALIFIED AS A RESPONSIBLE BIDDER BY THE ISSUANCE OF THE CERTIFICATE OF COMPETENCY PRIOR TO THE TIME OF ANY AWARD ON THE SET-ASIDE, WE ARE AWARE OF NO BASIS FOR NOT ENTERING INTO NEGOTIATIONS WITH THAT FIRM FOR SUCH AWARD IN ACCORDANCE WITH THE PRIORITIES ESTABLISHED BY ARTICLE 23, SUBJECT TO THE RIGHT OF REFERRAL IN PARAGRAPH 1-705.6 (A), ARMED SERVICES PROCUREMENT REGULATION.

THE NEXT QUESTION PRESENTED IS THE PRICE AT WHICH THE SET-ASIDE PORTION SHOULD BE OFFERED TO SEAL VIEW PLASTICS IN VIEW OF THE FACT THAT THE FIRM'S BID ON THE ADVERTISED QUANTITY WAS SIGNIFICANTLY LESS THAN THAT OF THE SUCCESSFUL BIDDER. ASPR 1-804.2 (D) STATES," THE SET ASIDE PORTION SHALL BE AWARDED AT THE HIGHEST UNIT PRICE AWARDED FOR THE NON-SET-ASIDE PORTION.' ARTICLE 23 OF THE INVITATION CONTAINS A PROVISION TO THE SAME EFFECT. WHILE THIS LANGUAGE APPEARS CLEARLY TO CONTEMPLATE NEGOTIATIONS ON THE SET-ASIDE AT THE PRICE OF THE NON-SET ASIDE AWARD, THERE MUST NOT BE OVERLOOKED THE FACT THAT THE STATEMENTS WERE UNDOUBTEDLY WRITTEN IN CONTEMPLATION OF THE VAST MAJORITY OF SITUATIONS WHERE THE SET-ASIDE WOULD BE AWARDED TO A BIDDER AT A PRICE LESS THAN OR EQUAL TO HIS BID.

ON THE OTHER HAND, ASPR 1-802 PROVIDES WITH RESPECT TO SET-ASIDES FOR LABOR SURPLUS AREAS," BUT IN NO CASE WILL PRICE DIFFERENTIALS BE PAID FOR THE PURPOSE OF CARRYING OUT THIS POLICY.' THIS PROVISION IS BASED ON THE LANGUAGE OF A PROVISO IN SECTION 644 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1954, 67 STAT. 357, WHICH HAS BEEN CARRIED FORWARD IN APPROPRIATION ACTS SINCE THAT TIME. SEE, CURRENTLY, SECTION 623 OF PUBLIC LAW 87-144, 75 STAT. 379. WE CONSIDERED THE STATUTORY LANGUAGE AT 40 COMP. GEN. 489, 490, STATING IN PART:

ON THE RECORD WE MUST CONSTRUE THE LIMITATION IN QUESTION AS PRECLUDING THE EXPENDITURE BY THE DEFENSE ESTABLISHMENT OF APPROPRIATED FUNDS UNDER ANY CONTRACT AWARDED ON THE BASIS OF A LABOR SURPLUS AREA SITUATION AT A PRICE IN EXCESS OF THE LOWEST OBTAINABLE ON AN UNRESTRICTED SOLICITATION OF BIDS OR PROPOSALS.

THE LEGISLATION APPEARS TO HAVE BEEN INTENDED PRIMARILY TO PROHIBIT AN AWARD OF A CONTRACT TO A FIRM IN A DISTRESSED LABOR AREA AT A PRICE HIGHER THAN THE OTHERWISE ACCEPTABLE BID OF ANOTHER FIRM NOT IN SUCH AREA. SEE NO REASON, HOWEVER, WHY IT SHOULD NOT BE INTERPRETED TO PROHIBIT AS WELL THE PAYMENT TO A BIDDER IN A LABOR SURPLUS AREA OF A PRICE GREATER THAN THE OTHERWISE ACCEPTABLE OFFER OF THAT BIDDER. TO HOLD OTHERWISE WOULD IN EFFECT PUT THE CONTRACTING AGENCY IN THE POSITION OF DENYING AN AWARD TO A BIDDER AT HIS BID PRICE BUT, INSTEAD, OFFERING HIM AN ALMOST IDENTICAL AWARD AT A SUBSTANTIALLY HIGHER PRICE. WHILE THE CONTRACTING AGENCY MAY PROPERLY EXERCISE BROADER DISCRETION THAN UNDER FORMAL ADVERTISING, NEGOTIATIONS SHOULD NEVERTHELESS BE CONDUCTED TO THE BEST ADVANTAGE OF THE GOVERNMENT. 38 COMP. GEN. 413, 416. THIS DUTY WOULD NOT BE CARRIED OUT, IN OUR VIEW, IF AWARD OF THE SET-ASIDE SHOULD BE MADE TO SEAL VIEW PLASTICS AT A PRICE HIGHER THAN ITS ID; SUCH BID PRICE SHOULD, THEREFORE, BE REGARDED AS A CEILING ON ANY AWARD UNDER THE SET-ASIDE TO SEAL VIEW PLASTICS. AS WE STATED AT 39 COMP. GEN. 503, 505:

* * * WE BELIEVE THERE IS A REASONABLE BASIS FOR HOLDING THAT THE "HIGHEST UNIT PRICE" * * * SHOULD IN NO EVENT BE CONSTRUED TO REQUIRE AN AWARD AT A PRICE HIGHER THAN THAT BID BY THE PARTY ENTITLED TO THE AWARD.

IF, FOR SOME REASON CONSISTENT WITH THE FOREGOING, NEGOTIATIONS WITH SEAL VIEW PLASTICS DO NOT CULMINATE IN AN AWARD OF THE SET-ASIDE, NEGOTIATIONS MAY THEN BE UNDERTAKEN WITH THE NEXT ELIGIBLE FIRM PURSUANT TO ARTICLE 23.

IT IS ALSO NOTED IN YOUR LETTER THAT THE REQUIREMENT FOR RADOMES HAS INCREASED SINCE ISSUANCE OF THE INVITATION AND THE DEPARTMENT IS CONSIDERING THE POSSIBILITY OF ISSUING A NEW INVITATION WITH A 50 PERCENT LABOR SURPLUS SET-ASIDE TO INCORPORATE BOTH THE ADDITIONAL REQUIREMENT AND THE QUANTITY INCLUDED IN THE CURRENT SET-ASIDE. WE NOTE THAT SET-ASIDES MAY BE WITHDRAWN UPON A PROPER DETERMINATION BY THE CONTRACTING OFFICER UNDER ASPR 1-804.3. THIS APPEARS TO BE AN ADMINISTRATIVE MATTER AND WE HAVE NO OBJECTION TO THE PROPOSED COMBINATION OF THE REQUIREMENTS IN A NEW INVITATION IF SUCH ACTION IS DETERMINED TO BE IN THE GOVERNMENT'S BEST INTERESTS.