B-151407, SEP. 25, 1963, 43 COMP. GEN. 298

B-151407, SEP. 25, 1963, 43 COMP. GEN. 298

BIDDERS - QUALIFICATIONS - SMALL BUSINESS CONCERNS - NONREFERRAL FOR CERTIFICATION JUSTIFICATION A DETERMINATION UNDER PARAGRAPH 1-904 OF THE ARMED SERVICES PROCUREMENT REGULATION OF THE NONRESPONSIBILITY OF A SMALL BUSINESS CONCERN, THE LOW BIDDER UNDER THE INVITATION, ON THE BASIS OF A RECORD OF SUBSTANTIAL DELIVERY DELINQUENCIES WITHOUT REFERRAL TO THE SMALL BUSINESS ADMINISTRATION UNDER 15 U.S.C. 637 (B) (7) FOR CERTIFICATION OF THE CONCERN'S CAPACITY AND CREDIT WAS UNJUSTIFIED ABSENT A FINDING THAT THE DELINQUENCY AROSE OUT OF SOMETHING OTHER THAN CAPACITY AND CREDIT AND, THEREFORE, WAS NOT WITHIN THE SCOPE OF A SBA CERTIFICATION AND, ALTHOUGH CANCELLATION OF THE AWARD IS NOT REQUIRED, FUTURE AWARDS AFTER REJECTION OF A SMALL BUSINESS BID FOR NONRESPONSIBILITY WITHOUT SUBMITTING THE MATTER TO THE SMALL BUSINESS ADMINISTRATION WILL BE REGARDED AS INVALID UNLESS AWARD IS REQUIRED WITHOUT DELAY, OR THE FINDING OF NONRESPONSIBILITY IS BASED ON SUBSTANTIAL EVIDENCE THAT A SITUATION RESULTING FROM FACTORS NOT INCLUDED IN CAPACITY OR CREDIT EXISTED TO JUSTIFY THE FINDING.

TO THE SECRETARY OF THE ARMY, SEPTEMBER 25, 1963:

WE REFER TO A LETTER OF JUNE 28, 1963, WITH ENCLOSURES, IN REPLY TO OUR LETTER OF MAY 3, 1963, CONCERNING THE DISPOSITION OF THE LOW BID SUBMITTED BY THE MACHINE PRODUCTS COMPANY IN RESPONSE TO INVITATION NO. AM (A) 28- 017-63-178 ISSUED FROM THE PICATINNY ARSENAL, DOVER, NEW JERSEY, ON JANUARY 29, 1963, FOR THE PROCUREMENT OF 8,500 CARTRIDGE CASES. UNDER THE TERMS OF THE INVITATION ONLY SMALL BUSINESS FIRMS WERE ELIGIBLE TO PARTICIPATE IN THE COMPETITION.

BIDS WERE OPENED AS SCHEDULED ON FEBRUARY 13, 1963. THE LOW BID WAS SUBMITTED BY MACHINE PRODUCTS AT A UNIT PRICE OF $5.16 NET. THE THIRD LOW BIDDER, THE DEHOFF CORPORATION, OFFERED TO PERFORM AT $6.19 PER UNIT LESS A PROMPT PAYMENT DISCOUNT OF 1/2 OF 1 PERCENT. THE TERMS OF THE INVITATION PROVIDED FOR DELIVERIES OF PRODUCTION UNITS TO BEGIN SIXTY DAYS AFTER DATE OF AWARD AND TO CONTINUE AT A RATE OF 600 UNITS PER WEEK.

IN DETERMINING THE RESPONSIBILITY OF THE LOW BIDDER, MACHINE PRODUCTS, THE CONTRACTING OFFICER MADE A THOROUGH INVESTIGATION OF THE HISTORY OF PERFORMANCE BY THE FIRM UNDER CONTRACT NO. DA-28-017-AMC 175 (A) AWARDED ON JANUARY 25, 1963, FOR 14,830 OF THE SAME ITEM WITH PRODUCTION DELIVERIES TO BEGIN ON MARCH 21, 1963, AT A RATE OF 600 PER WEEK. FROM THE INVESTIGATION, INCLUDING A 2-DAY INSPECTION OF THE LOW BIDDER'S PLANT, THE CONTRACTING OFFICER CONCLUDED THAT HE COULD NOT MAKE AN AFFIRMATIVE DETERMINATION THAT MACHINE PRODUCTS WAS RESPONSIBLE AS REQUIRED UNDER PAR. 1-904, ARMED SERVICES PROCUREMENT REGULATION. THE INVESTIGATION DISCLOSED THAT AS OF APRIL 15 MACHINE PRODUCTS WAS 3,000 CASES BEHIND IN DELIVERIES UNDER THE EARLIER CONTRACT. IT APPEARS THAT THIS DELINQUENCY WAS IN SUBSTANTIAL MEASURE A BASIS FOR THE DETERMINATION OF NONRESPONSIBILITY. THE SECOND LOW BIDDER WAS ALSO FOUND TO BE NONRESPONSIBLE AND AWARD WAS MADE ON APRIL 18, 1963, TO DEHOFF, THE THIRD LOW BIDDER.

IN THE ADMINISTRATIVE REPORT FURNISHED ON THE MATTER, THE POSITION OF THE CONTRACTING OFFICER WITH RESPECT TO THE MACHINE PRODUCTS' BID IS STATED IN PART AS FOLLOWS:

THE CONTRACTING OFFICER HAS CONCLUDED THAT MACHINE PRODUCTS COMPANY'S FAILURE TO DELIVER UNDER CONTRACT DA-28-017-AMC-175 (A) WAS NOT DUE TO LACK OF CAPACITY OR CREDIT, AND THEREFORE DOES NOT FALL WITHIN THE PURVIEW OF ASPR 1-705.6 (B) (IV), WHICH REQUIRES DISCUSSION WITH THE LOCAL SMALL BUSINESS ADMINISTRATION REPRESENTATIVE UNDER CERTIFICATE OF COMPETENCY PROCEDURES. THE CONTRACTING OFFICER CITES 37 COMPTROLLER GENERAL 798 (CITED B-149063 16 JULY 1962) AS ESTABLISHING PRECEDENT FOR HAVING REACHED THIS CONCLUSION.

THE FILE INDICATES THAT BOTH THE ARMY MUNITIONS COMMAND AND THE ARMY MATERIEL COMMAND CONCUR IN THE POSITION OF THE CONTRACTING OFFICER.

IT IS WELL SETTLED THAT THE DETERMINATION OF A BIDDER'S RESPONSIBILITY INVOLVES THE EXERCISE OF A CONSIDERABLE RANGE OF DISCRETION, AND OUR OFFICE HAS CONSISTENTLY ADHERED TO THE RULE THAT THE ADMINISTRATIVE DETERMINATION WILL NOT BE QUESTIONED UNLESS ARBITRARY, CAPRICIOUS OR NOT BASED ON SUBSTANTIAL EVIDENCE. 38 COMP. GEN. 131; 37 COMP. GEN. 430, 435. HOWEVER, WHERE, AS HERE, THE BIDDER IS A SMALL BUSINESS CONCERN, THE CONTRACTING OFFICER'S DETERMINATION OF RESPONSIBILITY IS SUBJECT, SO FAR AS CONCERNS CAPACITY AND CREDIT TO THE AUTHORITY OF THE SMALL BUSINESS ADMINISTRATION UNDER SECTION 8 (B) (7) OF THE SMALL BUSINESS ACT, PUBLIC LAW 85-536, 15 U.S.C. 637 (B) (7), TO CERTIFY TO GOVERNMENT PROCUREMENT OFFICERS WITH RESPECT TO THE CAPACITY AND CREDIT OF A SMALL BUSINESS TO PERFORM A SPECIFIC GOVERNMENT PROCUREMENT CONTRACT. UNDER THE TERMS OF THE STATUTORY PROVISION THE PROCUREMENT OFFICERS OF THE GOVERNMENT ARE REQUIRED TO ACCEPT THE SBA CERTIFICATION AS CONCLUSIVE. THE TERM "CAPACITY AND CREDIT" HAS BEEN DEFINED AS THE OVERALL ABILITY OF THE BIDDER TO MEET QUALITY, QUANTITY, AND TIME REQUIREMENTS OF THE PROCUREMENT, INCLUDING ABILITY TO PERFORM, ORGANIZATION, TECHNICAL EXPERIENCE, KNOWLEDGE, SKILLS,"KNOWHOW," TECHNICAL EQUIPMENT, AND FACILITIES. SEE ASPR 1 705.6 (A); 38 COMP. GEN. 864. IN SHORT, THE CERTIFICATE IS CONCLUSIVE AS TO WHETHER THE BIDDER CAN PERFORM.

TO GIVE EFFECT TO THE STATUTE, PROCEDURES HAVE BEEN ESTABLISHED BY ASPR 1 -705.6 REQUIRING THE CONTRACTING OFFICER, WHERE HE HAS FOUND A SMALL BUSINESS WHICH HAS SUBMITTED AN OTHERWISE ACCEPTABLE LOW BID TO BE NONRESPONSIBLE BY REASON OF FACTORS INCLUDED IN THE SBA CERTIFICATION, TO SUBMIT THE MATTER TO THE SMALL BUSINESS ADMINISTRATION UNLESS THE AWARD MUST BE MADE WITHOUT DELAY. IF, HOWEVER, THE CONTRACTING OFFICER DETERMINES SUCH LOW BIDDER TO BE NONRESPONSIBLE FOR REASONS NOT GOING TO THE CERTIFICATION--- FACTORS GOING TO WHETHER THE BIDDER WILL RATHER THAN CAN PERFORM--- THE MATTER NEED NOT BE SUBMITTED TO THE SMALL BUSINESS ADMINISTRATION.

THE CERTIFICATION AUTHORITY OF THE SMALL BUSINESS ADMINISTRATION WAS INTENDED TO SIGNIFICANTLY LIMIT THE AUTHORITY OF THE CONTRACTING OFFICER IN DETERMINING THE RESPONSIBILITY OF A SMALL BUSINESS BIDDER. WE DO NOT THINK SUCH LIMITATION CAN BE OVERCOME BY SIMPLY CONCLUDING THAT THE REASONS FOR THE CONTRACTING OFFICER'S NEGATIVE DETERMINATION BELONG IN THE CATEGORY OF FACTORS WHICH WOULD NOT BE COVERED BY THE SBA CERTIFICATION. YET WE HAVE A LITTLE MORE THAN THAT IN THIS CASE. THE ONLY CONCRETE EVIDENCE PRESENTED TO JUSTIFY A FINDING OF NONRESPONSIBILITY IS THE LOW BIDDER'S DELINQUENCY UNDER THE CURRENT CONTRACT WITHOUT ANYTHING TO JUSTIFY A FINDING THAT SUCH DELINQUENCY AROSE OUT OF SOMETHING OTHER THAN THE FACTORS INCLUDED UNDER THE PHRASE "CAPACITY OR CREDIT" AND, THEREFORE, WAS NOT WITHIN THE SCOPE OF THE SBA CERTIFICATION. A RECORD OF PAST DELINQUENCIES OR DEFAULTS BY A COMPANY PROVIDES NO BASIS FOR REFUSING TO MAKE AN AWARD WITHOUT REFERRAL TO SBA IF SUCH DELINQUENCIES OR DEFAULTS WERE DUE TO FACTORS INCLUDED IN CAPACITY OR CREDIT. 38 COMP. GEN. 289.

IN A RECENT DECISION, B-151121, SEPTEMBER 13, 1963, 43 COMP. GEN. 257, COPY ENCLOSED, WE HELD THAT WHERE THE SMALL BUSINESS ADMINISTRATION HAS CERTIFIED THE CAPACITY AND CREDIT OF A SMALL BUSINESS FIRM WITH RESPECT TO A GIVEN PROCUREMENT, A DETERMINATION OF NONRESPONSIBILITY BY THE CONTRACTING OFFICER BECAUSE OF FACTORS NOT INCLUDED IN THE CERTIFICATION MUST BE SUPPORTED BY SUBSTANTIAL EVIDENCE TO ESTABLISH NOT ONLY THAT A SITUATION EXISTS TO JUSTIFY THE DETERMINATION BUT THAT THE SITUATION RESULTS FROM FACTORS NOT COVERED BY CAPACITY AND CREDIT. IN THE CITED CASE WE WERE CONSIDERING A DETERMINATION OF NONRESPONSIBILITY BY THE CONTRACTING OFFICER WHERE A CERTIFICATE HAD ALREADY BEEN ISSUED BY THE SBA. IN OUR JUDGMENT, THE SAME STANDARD OF PROOF IS PROPERLY FOR APPLICATION TO JUSTIFY A DETERMINATION THAT THE MATTER NEED NOT BE SUBMITTED TO SBA BECAUSE THE BASIS FOR THE UNFAVORABLE DETERMINATION GOES TO FACTORS BEYOND CAPACITY AND CREDIT.

IN SUPPORT OF HIS ACTION WITH REFERENCE TO MACHINE PRODUCTS, THE CONTRACTING OFFICER HAS CITED 37 COMP. GEN. 798. IN THAT DECISION WE STATED---

* * * WHERE AS HERE A BIDDER IS FOUND NOT TO BE QUALIFIED BECAUSE OF PRIOR UNSATISFACTORY CONTRACT PERFORMANCE, THE CERTIFICATE OF COMPETENCY, BEING LIMITED TO "CAPACITY AND CREDIT," COULD NOT BE DETERMINATIVE OF THE AWARD TO BE MADE. (P. 800.)

UNDER THE CIRCUMSTANCES WE CONCLUDED THAT THE CONTRACTING OFFICER WAS NOT REQUIRED TO REFER THE MATTER TO THE SMALL BUSINESS ADMINISTRATION EVEN THOUGH THE BIDDER IN QUESTION WAS A SMALL BUSINESS.

THE ABOVE-CITED DECISION PRECEDED IN TIME THAT AT 38 COMP. GEN. 864 WHICH ESTABLISHED THE PRESENT BROAD DEFINITION OF "CAPACITY AND CREDIT.' HOWEVER, AT 38 COMP. GEN. 289, EVEN BEFORE THE DEFINITION WAS ESTABLISHED, WE MADE IT CLEAR THAT THE RULING AT 37 COMP. GEN. 798 WAS INTENDED TO APPLY ONLY IN THOSE INSTANCES WHERE THE CONTRACTING OFFICER DID NOT ATTRIBUTE THE PRIOR UNSATISFACTORY CONTRACT PERFORMANCE TO LACK OF CAPACITY OR CREDIT. THE CONTRACTING OFFICER APPARENTLY CONCLUDED THAT A SIMPLE STATEMENT ON HIS PART WAS SUFFICIENT TO BRING THE CASE WITHIN THE RULE AT 37 COMP. GEN. 798 SO THAT THE QUESTION OF COMPETENCY NEED NOT BE SUBMITTED TO THE SBA. THE DECISION AT 38 COMP. GEN. 289 WAS INTENDED TO JUSTIFY A DETERMINATION OF NONRESPONSIBILITY WITHOUT REFERENCE TO THE SMALL BUSINESS ADMINISTRATION ONLY WHEN THE RECORD OF POOR PAST PERFORMANCE PROVIDED SUBSTANTIAL EVIDENCE TO DEMONSTRATE THAT SUCH PERFORMANCE WAS DUE TO ONE OR MORE FACTORS NOT INCLUDED WITHIN CAPACITY OR CREDIT. IN THIS CONNECTION, WE POINTED OUT THAT 37 COMP. GEN. 798 SHOULD NOT BE INTERPRETED AS JUSTIFYING A CONCLUSION THAT QUESTIONS OF CAPACITY AND CREDIT AND QUESTIONS OF PAST PERFORMANCE ARE NECESSARILY UNRELATED. HOWEVER, WE CANNOT SAY THAT THE CONTRACTING OFFICER'S APPARENT INTERPRETATIONS WAS NOT A REASONABLE, ALBEIT SOMEWHAT STRAINED, READING OF OUR LANGUAGE AT 38 COMP. GEN. 289. ACCORDINGLY, WE WILL NOT REQUIRE CANCELLATION OF THE CONTRACT AWARDED TO DEHOFF. IT SHOULD, HOWEVER, BE CLEARLY UNDERSTOOD THAT IN THE FUTURE, A CONTRACT AWARDED AFTER THE REJECTION OF A SMALL BUSINESS BID FOR NONRESPONSIBILITY WITHOUT SUBMITTING THE MATTER TO THE SMALL BUSINESS ADMINISTRATION WILL BE REGARDED AS INVALID UNLESS THE AWARD MUST BE MADE WITHOUT DELAY OR THE FINDING OF NONRESPONSIBILITY IS BASED ON SUBSTANTIAL EVIDENCE THAT A SITUATION RESULTING FROM FACTORS NOT INCLUDED IN CAPACITY OR CREDIT EXISTS TO JUSTIFY THE FINDING.