B-157147, DEC. 22, 1965

TO MR. GEORGE L. HERMAN, PRESIDENT, METROPOLITAN SECURITY SERVICES, INC.:

REFERENCE IS MADE TO YOUR LETTERS OF JUNE 28 AND NOVEMBER 23, 1965, PROTESTING THE AWARDS OF CONTRACTS TO THE BURNS SECURITY SYSTEMS, INC., UNDER FEDERAL AVIATION AGENCY (FAA) AND DEPARTMENT OF THE ARMY INVITATIONS FOR BIDS, ON THE GROUND THAT IT MISREPRESENTED IN ITS BIDS TO THOSE AGENCIES THAT IT IS SMALL BUSINESS.

FAA INVITATION WA5S-5-518-B1 SOLICITED BIDS FOR SECURITY GUARD SERVICE AT VARIOUS AIR ROUTE TRAFFIC CONTROL CENTERS FOR THE PERIOD APRIL 1 THROUGH JUNE 30, 1965. ALTHOUGH IT IS TRUE THAT BURNS REPRESENTED ITSELF TO BE A SMALL BUSINESS CONCERN IN ITS BID, THE INVITATION WAS NOT RESTRICTED TO SMALL BUSINESS; HENCE, THE REPRESENTATION HAD NO BEARING ON THE AWARD AND BURNS GAINED NO SPECIAL ADVANTAGE THEREBY.

ON APRIL 22, 1965, FAA ISSUED INVITATION WA5S-5-877-B1 FOR THE SAME SERVICE EXCEPT THAT IT WAS TO COMMENCE ON JULY 1, 1965, AND WAS TO CONTINUE THROUGH JUNE 30, 1966. THE INVITATION WAS RESTRICTED TO SMALL BUSINESS. BIDS WERE OPENED ON MAY 20, 1965. THERE WERE 15 BIDS RECEIVED. THE THREE LOW BIDS WERE $413,364, $431,784 AND $519,876, RESPECTIVELY. THE LOW BID WAS NOT ACCEPTED BECAUSE THE BIDDER WAS UNABLE TO OBTAIN A CERTIFICATE OF COMPETENCY FROM THE SMALL BUSINESS ADMINISTRATION (SBA). THE SECOND LOW BIDDER WAS BURNS SECURITY SYSTEMS, INC., WHICH REPRESENTED IN ITS BID THAT IT WAS SMALL BUSINESS. HOWEVER, AS BURNS' SMALL BUSINESS STATUS WAS PROTESTED BY OTHER BIDDERS, ON JUNE 2, 1965, FAA PRESENTED THE MATTER TO SBA FOR CONSIDERATION. ON JUNE 17, 1965, FAA WAS ADVISED BY SBA THAT BURNS DID NOT QUALIFY AS SMALL BUSINESS. FAA HAD ESTIMATED THE COST OF THE PROCUREMENT AS APPROXIMATELY $480,000. SINCE THE PRICE OF THE THIRD LOW BIDDER WAS $39,876 HIGHER THAN THE ESTIMATE, FAA DECIDED THAT RATHER THAN PAY WHAT IT CONSIDERED ,AN UNREASONABLE PREMIUM" TO DO BUSINESS WITH SMALL BUSINESS IT WOULD CANCEL THE INVITATION AND ISSUE A NEW ONE WHICH WOULD NOT BE RESTRICTED TO SMALL BUSINESS. IN THIS REGARD, THE FEDERAL PROCUREMENT REGULATIONS PROVIDE IN SECTION 1-1.706 3 (B):

"IF, PRIOR TO THE AWARD OF A CONTRACT INVOLVING AN INDIVIDUAL OR CLASS SET-ASIDE FOR SMALL BUSINESS, THE CONTRACTING OFFICER CONSIDERS THAT PROCUREMENT OF THE SET-ASIDE PORTION FROM A SMALL BUSINESS CONCERN WOULD BE DETRIMENTAL TO THE PUBLIC INTEREST (E.G., BECAUSE OF UNREASONABLE PRICE), THE CONTRACTING OFFICER SHALL WITHDRAW A UNILATERAL SET-ASIDE DETERMINATION. * * *"

WHILE YOU SUGGEST THAT FAA'S PURPOSE IN CANCELING AND READVERTISING WAS TO GIVE BURNS THE OPPORTUNITY TO SECURE THE AWARD FOR THE SERVICE INVOLVED, AND WE UNDERSTAND BURNS HAS BEEN SUCCESSFUL IN OBTAINING THE NEW CONTRACT WHICH RUNS FROM SEPTEMBER 1, 1965, THROUGH JUNE 30, 1966, FAA HAS REPRESENTED, AS INDICATED ABOVE, THAT ITS ACTION IN CANCELING AND READVERTISING WAS MOTIVATED BY THE DIFFERENCE BETWEEN ITS ESTIMATE FOR THE SERVICE AND THE THIRD LOW BID ON THE APRIL 22 INVITATION. IN VIEW OF THE REGULATION, THE ACTION TAKEN BY THE AGENCY DOES NOT APPEAR TO HAVE BEEN IMPROPER.

THE OTHER INVITATION TO WHICH YOU HAVE REFERRED IS AI-28-013-65-78 ISSUED BY THE DEPARTMENT OF THE ARMY ON MAY 5, 1965, FOR BIDS FOR GUARD SERVICE AT SATELLITE COMMUNICATIONS STATION NO. 1 IN NEW JERSEY. THIS INVITATION ALSO WAS RESTRICTED TO SMALL BUSINESS PARTICIPATION. BURNS SECURITY SYSTEMS, INC., SUBMITTED THE LOWEST BID OF THE FIVE WHICH WERE PUBLICLY OPENED AND READ ON JUNE 4, 1965. ATTACHED TO BURNS' BID WAS A STATEMENT SHOWING THAT IT BEGAN OPERATION IN EARLY 1965, AND THAT ITS INCOME WAS CONSIDERABLY LESS THAN $1 MILLION. ALSO INCLUDED IN THE STATEMENT WAS INFORMATION THAT IT IS A WHOLLY OWNED SUBSIDIARY OF THE WILLIAM J. BURNS INTERNATIONAL DETECTIVE AGENCY, INC., WHICH IT REPRESENTED WAS A MULTIMILLION DOLLAR FIRM. DESPITE THIS INFORMATION, BURNS REPRESENTED IN ITS BID THAT IT WAS SMALL BUSINESS. SUBSEQUENT TO BID OPENING, THE CONTRACTING OFFICER QUESTIONED THE TREASURER OF BURNS SECURITY SYSTEMS AS TO ITS SMALL BUSINESS REPRESENTATION IN VIEW OF THE OTHER INFORMATION WITH ITS BID. THE TREASURER AFFIRMED THE SMALL BUSINESS REPRESENTATION ORALLY AND IN A LETTER DATED JUNE 9, 1965. THE CONTRACTING OFFICER ACCEPTED THE AFFIRMATION AND MADE AN AWARD TO BURNS. ON JUNE 14, 1965, A LETTER WAS SENT TO EACH UNSUCCESSFUL BIDDER ADVISING OF THE AWARD MADE. BY TELEGRAM AND LETTER ON JUNE 15, 1965, YOUR COMPANY PROTESTED THE AWARD TO THE CONTRACTING OFFICER. THE BASIS OF THE PROTEST WAS THAT BURNS DID NOT QUALIFY AS SMALL BUSINESS. THE CONTRACTING OFFICER REJECTED THE PROTEST ON THE GROUND THAT IT WAS NOT TIMELY.

IN YOUR LETTER TO US OF JUNE 28, 1965, YOU INDICATE THAT YOUR COMPANY WAS UNABLE TO MAKE A TIMELY PROTEST IN THAT A REPRESENTATIVE OF YOUR COMPANY WAS NOT PRESENT AT THE BID OPENING AND SUBSEQUENT ATTEMPTS BY A REPRESENTATIVE OF YOUR COMPANY TO OBTAIN RELIABLE INFORMATION ABOUT THE BIDDING WERE UNSUCCESSFUL. HOWEVER, THE CONTRACTING OFFICER POINTS OUT THAT THE FRONT OF THE INVITATION FOR BIDS INDICATES THAT THE POST PURCHASING AND CONTRACTING OFFICE IS THE ISSUING OFFICE OF THE INVITATION AND THE BID RECEIVING OFFICE, AND IT STATES THE OFFICE TELEPHONE NUMBER; HE POINTS OUT FURTHER THAT NOTE 10 ON PAGE 5 OF THE INVITATION SPECIFIED THE TELEPHONE NUMBER, THE SAME AS THE ONE ON THE FRONT PAGE, THAT IS TO BE CALLED CONCERNING INQUIRIES ABOUT THE INVITATION, AND HE DENIES CATEGORICALLY THAT ANY PERSON EMPLOYED IN THE PURCHASING AND CONTRACTING OFFICE WAS CONTACTED BEFORE AWARD REGARDING THE BIDS OR THAT ANYONE IN THAT OFFICE REFUSED TO DIVULGE INFORMATION AS TO THE BIDS RECEIVED.

THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) IS PERTINENT TO THE ARMY INVITATION. ASPR 1-703 (A) STATES THAT, EXCEPT AS PROVIDED IN PARAGRAPH (B), THE CONTRACTING OFFICER SHALL ACCEPT AT FACE VALUE A REPRESENTATION BY A BIDDER THAT IT IS SMALL BUSINESS. PARAGRAPH (B) OF THE CITED SECTION STATES THAT A REPRESENTATION BY A BIDDER THAT IT IS SMALL BUSINESS SHALL BE EFFECTIVE UNLESS THE SBA, IN RESPONSE TO A QUESTION RAISED BY ANOTHER BIDDER OR THE CONTRACTING OFFICER, DETERMINES THAT THE BIDDER IN QUESTION IS NOT A SMALL BUSINESS AND NOTIFIES THE CONTRACTING OFFICER BEFORE AWARD. PARAGRAPH (B) PROVIDES FURTHER THAT NO BIDDER SHALL BE ELIGIBLE FOR AWARD AS A SMALL BUSINESS UNLESS IT HAS IN GOOD FAITH REPRESENTED ITSELF AS SMALL BUSINESS BEFORE THE OPENING OF BIDS. THEREFORE, UNDER ASPR A BIDDER'S REPRESENTATION THAT IT IS SMALL BUSINESS SHALL BE ACCEPTED EXCEPT WHERE (1) THE SBA HAS NOTIFIED THE CONTRACTING OFFICER BEFORE AWARD IN RESPONSE TO QUESTIONING BY HIM OR A BIDDER THAT THE REPRESENTATION IS NOT CORRECT OR (2) WHERE THE BIDDER HAS NOT REPRESENTED ITS STATUS IN GOOD FAITH.

THE FIRST EXCEPTION WAS NOT FOLLOWED AND THEREFORE DOES NOT APPLY TO THIS CASE. THE ONLY REMAINING QUESTION IS WHETHER THE BIDDER IN REPRESENTING ITSELF AS SMALL BUSINESS ACTED IN GOOD FAITH. AS INDICATED ABOVE, THE BIDDER DID NOT ATTEMPT TO CONCEAL THE RELATIONSHIP WITH, OR THE SIZE OF, ITS PARENT ORGANIZATION. IT FURNISHED THIS INFORMATION WITH ITS BID. THE RECORD OF APPEAL OF ITS STATUS BEFORE THE SBA IN CONNECTION WITH THE FAA INVITATION SHOWS THAT IT WAS AWARE OF THE REGULATIONS AS TO SIZE STATUS; HOWEVER, IT DECIDED THAT THE REGULATIONS WOULD NOT BE APPLIED AS STRICTLY TO IT BECAUSE ITS PARENT ORGANIZATION WAS A DETECTIVE AGENCY WHICH WAS PRECLUDED FROM SUBMITTING A BID TO THE GOVERNMENT BY THE PINKERTON ACT, 5 U.S.C. 53, AND FOR THAT REASON IT BELIEVED THAT ONLY ITS SIZE, AND NOT THAT OF THE PARENT, WOULD BE CONSIDERED IN DETERMINING WHETHER IT WAS SMALL BUSINESS. WHILE IT IS TRUE THAT THE MATTER WAS UNDER CONSIDERATION BY THE SBA AT THE TIME ITS BID WAS PENDING BEFORE THE ARMY, IT IS TO BE NOTED THAT ITS BID TO THE ARMY IS DATED JUNE 2, THE DAY FAA PRESENTED THE MATTER TO SBA, AND THAT THE RULING OF SBA THAT IT WAS NOT SMALL BUSINESS WAS NOT ISSUED UNTIL JUNE 17, BY WHICH TIME THE ARMY HAD ALREADY MADE THE AWARD. THEREFORE, WHILE THE BIDER PROBABLY KNEW OF THE PENDENCY OF THE MATTER BEFORE SBA WHEN ITS BID WAS FOR CONSIDERATION BEFORE THE ARMY, IT DID NOT KNOW OF THE ADVERSE DECISION UNTIL AFTER AWARD. THEREFORE, ITS BID TO THE ARMY WAS NOT MADE WITH ANY KNOWLEDGE OF THE SBA RULING, SINCE THE RULING WAS NOT ISSUED UNTIL AFTER AWARD. IN THE CIRCUMSTANCES, WHILE THE APPLICABLE REGULATIONS (SECTION 121.3-2 OF THE SMALL BUSINESS SIZE STANDARDS REGULATION) APPEAR TO BE CLEAR THAT WHERE ONE CONCERN IS UNDER THE CONTROL OF ANOTHER THEY ARE TO BE CONSIDERED AFFILIATES OF EACH OTHER FOR PURPOSES OF DETERMINING SMALL BUSINESS STATUS, IT DOES NOT APPEAR THAT BURNS' ACTIONS IN THE MATTER WERE OTHER THAN BONA FIDE. IN ANY EVENT, IT DISCLOSED ITS RELATIONSHIP WITH THE PARENT COMPANY IN ITS BID AND THE CONTRACTING OFFICER WAS IN A POSITION WHERE HE COULD HAVE QUESTIONED THE SMALL BUSINESS REPRESENTATION IN VIEW OF THE INFORMATION BEFORE HIM. FACT, HE DID QUESTION IT, EXCEPT THAT HE RAISED THE QUESTION WITH THE BIDDER INSTEAD OF WITH SBA AND RELIED UPON THE BIDDER'S REAFFIRMATION OF ITS STATUS. IN THAT CONNECTION, IT IS TO BE OBSERVED THAT WHILE ASPR 1- 703/B) (2) REFERS TO THE SUBMISSION OF THE QUESTION BY THE CONTRACTING OFFICER TO SBA, IT PROVIDES ONLY THAT HE "MAY" PRESENT THE MATTER TO SBA AND DOES NOT MAKE IT MANDATORY. WHILE IN OUR OPINION THE CONTRACTING OFFICER, APPARENTLY REALIZING THERE WAS A LEGITIMATE QUESTION, SHOULD HAVE, IN THE EXERCISE OF GOOD JUDGMENT, SOUGHT AFFIRMATION FROM SBA INSTEAD OF FROM THE BIDDER, HE WAS NOT REQUIRED TO SUBMIT THE QUESTION TO SBA, AND IT APPEARS THAT THE BIDDER ACTED IN GOOD FAITH WHEN IT MADE A COMPLETE DISCLOSURE OF ITS ORGANIZATION BACKGROUND WITH ITS BID. AT THIS POINT IT SHOULD BE NOTED THAT BURNS' MANNER OF BIDDING WAS REFERRED TO THE DEPARTMENT OF JUSTICE FOR ITS CONSIDERATION AND THE DEPARTMENT HAS DECLINED TO PROSECUTE.

UNDER THE ASPR CITED ABOVE, FOR THE PURPOSES OF THE ARMY PROCUREMENT, THE REPRESENTATION MADE BY BURNS MUST BE ACCEPTED AS EFFECTIVE AND AS A RESULT THE CONTRACT AWARDED IS CONSIDERED VALID AND BINDING. THEREFORE, THE GOVERNMENT COULD NOT PROPERLY RECOVER THE PAYMENTS MADE TO THE CONTRACTOR AS YOU HAVE SUGGESTED IT SHOULD DO. HOWEVER, WE ARE SUGGESTING TO THE DEPARTMENT OF THE ARMY THAT APPROPRIATE STEPS BE TAKEN SO THAT IN THE FUTURE, WHEN A CONTRACTING OFFICER HAS REASON TO DOUBT THE VALIDITY OF A BIDDER'S REPRESENTATION THAT IT IS SMALL BUSINESS, HE WILL PRESENT THE MATTER TO SBA FOR ITS CONSIDERATION INSTEAD OF MERELY ACCEPTING THE BIDDER'S REAFFIRMATION.