B-159483, DEC. 1, 1966

B-159483, DEC. 1, 1966

TO THE VULCAN MATERIALS COMPANY:

WE REFER TO YOUR LETTERS OF JUNE 19 AND AUGUST 26, 1966, AND OTHER CORRESPONDENCE, REGARDING YOUR PROTEST AGAINST THE AWARD OF A CONTRACT UNDER INVITATION FOR BIDS NO. DAAHO366DO187, ISSUED BY THE UNITED STATES ARMY MISSILE SUPPORT COMMAND, PURCHASING AND CONTRACTING DIVISION, REDSTONE ARSENAL, ALABAMA, FOR THE REQUIREMENTS OF THE PROCURING ACTIVITY FOR PUG MILL MIX, AND CRUSHED STONE FOR THE PERIOD JULY 1, 1966 THROUGH JUNE 30, 1967. ESTIMATED REQUIREMENTS WERE 13,500 TONS OF PUG MILL MIX AND 30,000 TONS OF CRUSHED STONE.

PAGE 5 OF THE INVITATION STATED THAT BIDS SUBMITTED ON A BASIS OTHER THAN F.O.B. DESTINATION (REDSTONE ARSENAL, ALABAMA) WOULD BE REJECTED AS NONRESPONSIVE.

PAGE 7 OF THE INVITATION ADVISED THAT THE PROCUREMENT WAS TOTALLY SET ASIDE FOR SMALL BUSINESS CONCERNS. BIDS WERE OPENED ON JUNE 6, 1966, AND THE FOLLOWING BIDS WERE RECEIVED.

CHART

CRUSHED PUG MILL

STONE ROAD MIX

MADISON LIMESTONE, CO., INC. $2.00 $2.25

TRINITY STONE COMPANY $2.50 $3.00

VULCAN MATERIALS COMPANY $1.44 $1.60

YOUR BID WAS CONSIDERED TO BE A COURTESY BID SINCE YOU ARE NOT A SMALL BUSINESS CONCERN.

YOU CONTEND THAT THE ADMINISTRATIVE DETERMINATION TO SET ASIDE THE INSTANT PROCUREMENT TOTALLY FOR SMALL BUSINESS CONCERNS DOES NOT MEET THE REQUIREMENT OF SECTION 1-706.5 OF THE ARMED SERVICES PROCUREMENT REGULATION WHICH PROVIDES THAT A PROCUREMENT SHALL BE SET ASIDE FOR SMALL BUSINESS CONCERNS IF THE CONTRACTING OFFICER DETERMINES THAT THERE IS A REASONABLE EXPECTATION THAT BIDS OR PROPOSALS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES.

THE DETERMINATION TO SET ASIDE THE INSTANT PROCUREMENT WAS BASED ON PAST PROCUREMENT PROCEDURES AT REDSTONE ARSENAL. WE ARE ADVISED THAT THE HISTORY OF PURCHASING CRUSHED STONE AT REDSTONE ARSENAL ON A SET ASIDE BASIS IS AS FOLLOWS:

"FISCAL YEAR 1963 BIDDING PER TON FOR AN ESTIMATED 36,000 TONS OF CRUSHED STONE ON SET-ASIDE WAS:

MADISON LIMESTONE CO. INC.

HUNTSVILLE, ALABAMA $2.10

TRINITY STONE COMPANY

DECATUR, ALABAMA $2.25

"THE BIDDING PER TON FOR FISCAL YEAR 1964 FOR AN ESTIMATED 36,000 TONS OF CRUSHED STONE ON SET-ASIDE WAS:

MADISON LIMESTONE CO. INC.

HUNTSVILLE, ALABAMA $2.10

"THE BIDDING PER TON FOR FISCAL YEAR 1965 FOR AN ESTIMATED 36,000 TONS OF CRUSHED STONE WAS:

MADISON LIMESTONE COMPANY, INC.

HUNTSVILLE, ALABAMA $2.00

TRINITY STONE COMPANY

DECATUR, ALABAMA $2.25

"THE BIDDING PER TON FOR FISCAL YEAR 1965 FOR AN ESTIMATED 5,000 TONS OF PUG MILL MIX ON SET-ASIDE WAS:

ASHBURN AND GRAY, INC.

HUNTSVILLE, ALABAMA $2.52

CARR CONSTRUCTION COMPANY

HUNTSVILLE, ALABAMA $2.49

"THE BIDDING PER TON FOR FISCAL YEAR 1966 WAS AN ESTIMATED 30,000 TONS OF CRUSHED STONE ON SET-ASIDE WAS:

MADISON LIMESTONE CO. INC.

HUNTSVILLE, ALABAMA $2.00

ASHBURN AND GRAY, INC.

HUNTSVILLE, ALABAMA $2.21

"THE BIDDING PER TON FOR FISCAL YEAR 1966 FOR AN ESTIMATED 10,000 TONS OF PUG MILL MIX ON SET-ASIDE WAS:

MADISON LIMESTONE CO. INC.

HUNTSVILLE, ALABAMA $2.40

ASHBURN AND GRAY, INC.

HUNTSVILLE, ALABAMA $2.48"

IN VIEW OF THE ABOVE IT WAS THE CONTRACTING OFFICER'S OPINION THAT MADISON LIMESTONE COMPANY AND TRINITY STONE COMPANY WOULD SUBMIT BIDS AND THAT ASHBURN AND GRAY MIGHT SUBMIT A BID FOR THE INSTANT PROCUREMENT.

YOU HAVE ALLEGED THAT TRINITY STONE COMPANY COULD NOT ACTUALLY COMPETE WITH MADISON LIMESTONE COMPANY FOR THE INSTANT PROCUREMENT BECAUSE TRINITY STONE COMPANY'S TRANSPORTATION COSTS WOULD BE TOO HIGH. IN THIS CONNECTION TRINITY STONE COMPANY ALLEGEDLY WOULD HAVE TO TRANSPORT THE STONE SOME 27 MILES TO REDSTONE ARSENAL COMPARED TO MADISON LIMESTONE COMPANY WHICH WOULD HAVE TO TRANSPORT THE STONE SOME 5 MILES. YOU ALSO CONTEND THAT ASHBURN AND GRAY COULD NOT BE CONSIDERED AS A COMPETITOR TO MADISON LIMESTONE COMPANY IN THE INSTANT PROCUREMENT SINCE ASHBURN AND GRAY ARE NOT PRODUCERS OF CRUSHED STONE, AND USE MADISON LIMESTONE COMPANY AS THEIR SUPPLIER OF CRUSHED STONE AND PUG MILL MIX.

YOU ALSO CONTEND THAT THE PRICE QUOTED IN MADISON LIMESTONE COMPANY'S BID FOR THE INSTANT PROCUREMENT IS UNREASONABLE. YOU ADVISE THAT MADISON LIMESTONE COMPANY HAS A CONTRACT TO FURNISH CRUSHED STONE TO THE STATE OF ALABAMA DELIVERED TO ANY POINT IN MADISON COUNTY AT $1.38 PER TON. THIS HAS BEEN CONFIRMED BY THE DEPARTMENT OF THE ARMY. IT HAS ALSO BEEN CONFIRMED BY THE DEPARTMENT OF THE ARMY THAT THE CITY OF HUNTSVILLE AND MADISON COUNTY PAY $1.35 PER TON FOR CRUSHED STONE AND $1.50 FOR PUG MILL MIX, F.O.B. MADISON LIMESTONE COMPANY'S CRUSHER. APPARENTLY THE REQUIREMENTS OF REDSTONE ARSENAL FOR CRUSHED STONE AND PUG MILL MIX ARE MINIMAL WHEN COMPARED TO COUNTY, STATE, AND COMMERCIAL REQUIREMENTS FOR THESE ITEMS.

WITH RESPECT TO THE ACTION THAT SHOULD BE TAKEN IN CONNECTION WITH THE INSTANT PROCUREMENT, THE DEPARTMENT OF THE ARMY ADVISES AS FOLLOWS:

"5. IT IS THE OPINION OF THE CONTRACTING OFFICER THAT MADISON'S RESISTANCE TO VULCAN'S ENTRY INTO THE HUNTSVILLE AREA MARKET AND VULCAN'S AGGRESSIVE DETERMINATION TO ENTER THE MARKET HAVE RESULTED IN A DISTORTED PRICE STRUCTURE WHICH CANNOT LAST BEYOND THE POINT WHERE ONE OF THE COMPETITORS DOMINATES THE MARKET. THIS SITUATION PUTS THE ARMY IN A POSITION WHERE EITHER THE AWARD OF A CONTRACT FROM THE BIDS OR READVERTISING THE REQUIREMENT WITHOUT A SET-ASIDE, OR WITH A PARTIAL SET- ASIDE, WOULD BE INTERPRETED AS TAKING A SIDE IN A COMMERCIAL CONFLICT.

"6. SINCE THE SET-ASIDE OF STONE HAD BEEN CUSTOMARY FOR SEVERAL YEARS AND SINCE THE INSTANT SET-ASIDE WAS MADE IN GOOD FAITH AND BEFORE THE CONTRACTING OFFICER HAD KNOWLEDGE OF THE DECREASE IN PRICES BECAUSE OF THE SHARP COMMERCIAL COMPETITION BETWEEN THE PRODUCERS, IT IS BELIEVED THAT THE BETTER POSITION WOULD BE TO LET THE SET-ASIDE STAND AND TO MAKE AN AWARD FROM THE BIDDING OF 6 JUNE 1966. THIS COURSE WOULD BASE THE REASONABLENESS OF THE PRICE ON THE HISTORICAL DATA AND WOULD GIVE CONSIDERATION TO THE DISTORTED PRICE STRUCTURE BROUGHT ABOUT BY THE STRUGGLE BETWEEN THE TWO LOCAL STONE PRODUCERS AND TO PRICES PREVALENT IN OTHER ALABAMA COUNTIES.'

IT APPEARS THAT THE CONTRACTING OFFICER WAS NOT AWARE OF THE SITUATION REGARDING CRUSHED STONE AND PUG MILL MIX THAT WAS DEVELOPING IN THE HUNTSVILLE AREA AT THE TIME THE INSTANT PROCUREMENT WAS SET ASIDE FOR SMALL BUSINESS CONCERNS. LEGALLY, WE HAVE NO BASIS TO QUESTION AN ADMINISTRATIVE DETERMINATION THAT A PROCUREMENT SHOULD BE SET ASIDE FOR SMALL BUSINESS CONCERNS UNLESS IT CAN BE SHOWN THAT THE DETERMINATION WAS ARBITRARY, CAPRICIOUS OR MADE IN BAD FAITH. SEE B 150048, DECEMBER 12, 1962, WHERE WE STATED AS FOLLOWS:

"THE DETERMINATION TO SET ASIDE A PROCUREMENT FOR SMALL BUSINESS IS WITHIN THE AMBIT OF SOUND ADMINISTRATIVE DISCRETION. THIS AUTHORITY IS VERY BROAD AND AN ADMINISTRATIVE DETERMINATION MADE PURSUANT TO SUCH AUTHORITY IS NOT ORDINARILY REVIEWED BY OUR OFFICE.'

IN THE CIRCUMSTANCES WE AGREE WITH THE DEPARTMENT OF THE ARMY THAT THE BEST PRESENT COURSE OF ACTION IS TO MAKE AWARD UNDER THE INVITATION AS ISSUED.

WE HAVE RECOMMENDED IN OUR LETTER TO THE DEPARTMENT OF THE ARMY THAT IN VIEW OF THE INFORMATION WHICH HAS BEEN PRESENTED, A REVIEW SHOULD BE MADE TO DETERMINE WHETHER FUTURE REQUIREMENTS OF CRUSHED STONE AND PUG MILL MIX WOULD PROPERLY BE THE SUBJECT FOR A TOTAL SET ASIDE IN FAVOR OF SMALL BUSINESS CONCERNS.

WE ARE RETURNING THE TWO FILES CONTAINING YOUR DAILY SHIPPING REPORTS.