B-161140, MAY 5, 1967

B-161140, MAY 5, 1967

TO MR. B. D. SHEAR, EXECUTIVE VICE PRESIDENT:

PURSUANT TO YOUR REQUEST, THE DEFENSE SUPPLY AGENCY (DSA) FORWARDED FOR REVIEW BY OUR OFFICE YOUR PROTESTS AGAINST AWARDS TO THE ROBERT DEMAY COMPANY OF A TOTAL SMALL BUSINESS SET-ASIDE UNDER INVITATION FOR BIDS NO. DSA-400-67-B-4628, AND OF THE SMALL BUSINESS SET-ASIDE AND NON-SET-ASIDE PORTIONS UNDER INVITATION FOR BIDS NO. DSA-700-67-B 2606.

SUBSEQUENTLY, BY LETTER OF APRIL 21, 1967, YOU FURNISHED A SUPPLEMENTAL STATEMENT REGARDING THE PROTESTS.

THE SMALL BUSINESS ADMINISTRATION NORTH CAROLINA REGIONAL OFFICE DETERMINED THAT THE DEMAY COMPANY IS A SMALL BUSINESS CONCERN FOR THE PURPOSES OF THE TWO PROCUREMENTS. THE DETERMINATION WAS BASED UPON A FINDING THAT THE COMPANY IS INDEPENDENTLY OWNED AND OPERATED, THAT IT IS NOT AN AFFILIATE OF ANOTHER FIRM, THAT ITS STOCKHOLDERS NEITHER OWN NOR CONTROL ANOTHER FIRM, OR HAVE ANY CONTRACTUAL AGREEMENT WHICH WOULD EXERCISE LARGE BUSINESS CONTROL OF MANAGEMENT, AND THAT IT DOES NOT EMPLOY MORE THAN 500 EMPLOYEES. YOU HAVE INDICATED THAT YOU DO NOT DISAGREE WITH THAT DETERMINATION. HOWEVER, IT IS CONTENDED THAT THE ROBERT DEMAY COMPANY SHOULD NOT BE CONSIDERED FOR AWARD BECAUSE OF ITS IDENTITY WITH KINGS POINT INDUSTRIES, INC., ON THE PROCUREMENTS INVOLVED, BECAUSE IT WILL HAVE BUSINESS ARRANGEMENTS WITH KINGS POINT ON THE PROCUREMENTS, AND BECAUSE THE CLOSENESS OF THE BID PRICES OF THE TWO COMPANIES ON THE PROCUREMENT INVOLVING THE PARTIAL SET-ASIDE SUGGESTS TO YOU "A SET-UP CALCULATED TO INSURE A PRE-DETERMINED DISPOSITION" OF THE AWARDS. IT IS POINTED OUT THAT KINGS POINT IS NOT A SMALL BUSINESS CONCERN AND IT IS STATED THAT YOUR COMPANY HAS LEARNED THAT KINGS POINT IS TO ACT AS A SUPPLIER OF MATERIALS FOR THE DEMAY COMPANY. IT IS STATED THAT THIS WOULD HAVE THE EFFECT OF CIRCUMVENTING THE PURPOSE OF THE SMALL BUSINESS SET- ASIDE PROCEDURE. MOREOVER, IT IS ALLEGED THAT THE DEMAY COMPANY ITSELF LACKS THE NECESSARY MANUFACTURING EXPERIENCE AND FINANCIAL CAPABILITY.

THE DEFENSE SUPPLY AGENCY HAS ADVISED THAT PREAWARD SURVEYS OF THE ROBERT DEMAY COMPANY HAVE BEEN MADE FOR EACH OF THE PROCUREMENTS INVOLVED AND IT HAS BEEN DETERMINED THAT ALL THE RESPONSIBILITY FACTORS CONSIDERED IN THE SURVEYS ARE SATISFACTORY TO ESTABLISH ITS ABILITY TO PRODUCE THE ARTICLES REQUIRED. WHILE THE CONCLUSION WITH RESPECT TO THE COMPANY'S FINANCIAL POTENTIAL IS BASED UPON ITS OWN FINANCIAL STATUS AND KINGS POINT'S FINANCIAL ASSISTANCE, THE LATTER FACTOR WOULD NOT BE AN IMPROPER CONSIDERATION, SINCE A BIDDER'S FINANCIAL ABILITY, IN ADDITION TO BEING WEIGHED BY ITS CAPITAL, ALSO CAN BE MEASURED BY ITS ABILITY TO OBTAIN FINANCING AND OTHER LINES OF CREDIT. MOREOVER, DSA HAS ADVISED THAT IT HAS FOUND NOTHING WHICH WOULD SUBSTANTIATE A CONCLUSION THAT THE BID OF THE ROBERT DEMAY COMPANY WAS NOT AN INDEPENDENT BID UNDER EITHER INVITATION. IN THIS CONNECTION, IT SHOULD BE NOTED ALSO THAT, UNDER THE TERMS OF THE "CERTIFICATION OF INDEPENDENT PRICE DETERMINATION" ON STANDARD FORM 33, EACH BIDDER CERTIFIED BY SUBMISSION OF ITS BID THAT THE PRICES IN THE BID HAVE BEEN ARRIVED AT INDEPENDENTLY WITHOUT CONSULTATION, COMMUNICATION, OR AGREEMENT FOR THE PURPOSE OF RESTRICTING COMPETITION, AS TO ANY MATTER RELATING TO SUCH PRICES WITH ANY OTHER BIDDER OR WITH ANY COMPETITOR, AND THAT THE PRICES WHICH HAVE BEEN QUOTED IN THE BID HAVE NOT BEEN KNOWINGLY DISCLOSED BY THE BIDDER AND WILL NOT KNOWINGLY BE DISCLOSED BY THE BIDDER PRIOR TO OPENING, DIRECTLY OR INDIRECTLY, TO ANY OTHER BIDDER OR TO ANY COMPETITOR.

YOU ARE CORRECT IN YOUR ALLEGATION THAT KINGS POINT HAS OFFERED TO SUPPLY MATERIAL TO DEMAY FOR EACH OF THE PROCUREMENTS INVOLVED. HOWEVER, AS YOU POINT OUT, THE PARTIAL SET-ASIDE CONTAINS A PROVISION REQUIRING THE CONTRACTOR TO HAVE A SMALL BUSINESS SUBCONTRACTING PROGRAM. AS EVIDENCE THAT IT INTENDS TO COMPLY WITH THE REQUIREMENT, DEMAY HAS FURNISHED COMMITMENTS IT HAS RECEIVED FROM SMALL BUSINESS CONCERNS. THE CLAUSE WHICH PERTAINS TO THE TOTAL SET-ASIDE IS THE ONE WHICH PLACES AN OBLIGATION UPON THE CONTRACTOR TO ACCOMPLISH THE MAXIMUM AMOUNT OF SMALL BUSINESS SUBCONTRACTING WHICH THE CONTRACTOR FINDS TO BE CONSISTENT WITH THE EFFICIENT PERFORMANCE OF THE CONTRACT. THIS LATTER PROVISION DOES NOT PRECLUDE SUBCONTRACTING WITH OTHER THAN SMALL BUSINESS CONCERNS. 154849, AUGUST 18, 1964. ALSO, YOU HAVE BEEN ADVISED BY THE SMALL BUSINESS ADMINISTRATION THAT THERE IS NOTHING IN ITS RULES AND REGULATIONS WHICH PRECLUDES A SMALL BUSINESS FROM OBTAINING RAW MATERIALS FROM A LARGE BUSINESS TO MANUFACTURE AN END ITEM. SEE, ALSO, B-149278, AUGUST 13, 1962, WHEREIN, IN RESPONSE TO A CONTENTION THAT THE LOW BIDDER SHOULD NOT BE CONSIDERED FOR A SMALL BUSINESS SET-ASIDE BECAUSE IT WOULD BE ASSISTED BY A LARGE BUSINESS CONCERN IN VIOLATION OF THE SMALL BUSINESS ACT, IT WAS STATED THAT THERE IS NO LAW OR REGULATION PRECLUDING SMALL BUSINESS CONCERNS FROM SUBCONTRACTING WITH LARGE BUSINESS CONCERNS FOR A PORTION OF THE PRIME CONTRACT, AND THAT:

"* * * UNDER SECTION 8 (B) (6) OF THE SMALL BUSINESS ACT, 15 U.S.C. 637 (B) (6), PROCUREMENT OFFICES OF THE GOVERNMENT ARE REQUIRED TO ACCEPT AS CONCLUSIVE THE SBA DETERMINATION AS TO WHICH BUSINESS FIRMS ARE TO BE DESIGNATED AS SMALL BUSINESS. SINCE SBA HAS DETERMINED THAT ELLIS IS ELIGIBLE FOR AWARD UNDER THE INVITATION AS A SMALL BUSINESS CONCERN, THE PROCUREMENT OFFICE HAD NO ALTERNATIVE BUT TO ACCEPT THAT DETERMINATION AS FINAL.'

IN B-148155, MAY 17, 1962, WHICH ALSO INVOLVED A SMALL BUSINESS SUBCONTRACTING TO A BIG BUSINESS, IT WAS STATED:

"* * * THE STATUTES DECLARE THAT IN CERTAIN CONDITIONS AWARDS OF THE PRIME CONTRACTS MUST BE MADE TO SMALL BUSINESS, BUT SAY NOTHING ABOUT SUBCONTRACTS. UNDER THIS LANGUAGE, OUR OFFICE MAY DO NO MORE THAN INSIST THAT THE CONTRACTING AGENCY CONDUCT ITS SMALL BUSINESS PROCUREMENT IN A MANNER WHICH IS NOT INCONSISTENT WITH EXISTING LAW, REGULATION, AND PROPER CONTRACT PROVISIONS. * * *"

IT WAS THEN HELD THAT THERE WAS NO LAW, REGULATION OR CONTRACT PROVISION INCONSISTENT WITH A SMALL BUSINESS FIRM SUBCONTRACTING TO A LARGE BUSINESS CONCERN.

ADDITIONALLY, WE FIND NOTHING IMPROPER IN THE DEMAY COMPANY'S BIDS BECAUSE OF KINGS POINT'S OFFER TO BE A SUPPLIER TO DEMAY AND AT THE SAME TIME SUBMITTING A BID ON THE NON-SET-ASIDE. IN THIS CONNECTION, IT MAY BE OBSERVED THAT EVEN WHEN AFFILIATED COMPANIES SUBMIT SEPARATE LOW BIDS FOR LEGITIMATE BUSINESS REASONS, THE MULTIPLE BIDS ARE NOT LEGALLY OBJECTIONABLE AND MAY BE CONSIDERED FOR AWARD. 39 COMP. GEN. 892.

YOU HAVE INDICATED THAT BECAUSE OF THE SUBSTANTIAL FINANCIAL INTEREST THAT KINGS POINT WILL HAVE IN THE CONTRACTS INVOLVED, THE DEMAY COMPANY WILL BE LARGELY UNDER THE CONTROL OF KINGS POINT SO THAT IN EFFECT THE CONTRACTOR IS KINGS POINT, A LARGE BUSINESS, CONTRARY TO THE RESTRICTION OF SET-ASIDES TO SMALL BUSINESS CONCERNS ONLY. HOWEVER, IT SHOULD BE NOTED THAT GENERALLY ALL THE SMALL BUSINESS CONTRACTOR IS REQUIRED TO REPRESENT IS THAT THE SUPPLIES BID UPON WILL BE MANUFACTURED BY A SMALL BUSINESS CONCERN. SEE THE SMALL BUSINESS REPRESENTATION PROVISION IN STANDARD FORM 33. OF COURSE, AS OBSERVED ABOVE, THERE MAY BE INVITATION PROVISIONS REQUIRING SOMETHING MORE THAN MANUFACTURING BY A SMALL BUSINESS CONCERN. AS INDICATED ABOVE, THE DEMAY COMPANY HAS INDICATED AN INTENTION TO ABIDE BY SUCH PROVISIONS REQUIRING THE ESTABLISHMENT OF A SMALL BUSINESS SUBCONTRACTING PROGRAM.

YOU HAVE FURNISHED A LETTER FROM A SUPPLIER ADVISING THAT KINGS POINT HAS REPRESENTED THAT IT HAS BEEN AWARDED THE CONTRACT ON THE NON SET-ASIDE PORTION, WHICH HAS ACTUALLY BEEN AWARDED TO THE DEMAY COMPANY, AND THAT IT IS EXPECTING TO RECEIVE AN AWARD FOR THE SET ASIDE AS WELL. IN VIEW THEREOF, IT IS SUGGESTED THAT WHILE "OFFICIALLY" THE DEMAY COMPANY IS THE CONTRACTOR, IT WOULD APPEAR THAT, TO ALL INTENTS AND PURPOSES, KINGS POINT IS THE ACTUAL CONTRACTOR. HOWEVER, WHATEVER REPRESENTATIONS KINGS POINT MAY BE MAKING TO SUPPLIERS, NOWHERE IN THE RECORD IS IT INDICATED THAT THE REPRESENTATIONS ARE ENDORSED BY THE DEMAY COMPANY OR THAT IT INTENDS TO DO ANYTHING LESS THAN WHAT IS OR WILL BE REQUIRED TO BE DONE UNDER THE CONTRACTS THAT MAY BE AWARDED TO IT AS THE SUCCESSFUL SMALL BUSINESS BIDDER.

WITH RESPECT TO THE REQUEST YOU RECENTLY MADE BY TELEPHONE THAT A REVIEW BE MADE OF THE TELEGRAPHIC BID MODIFICATIONS SUBMITTED BY THE DEMAY COMPANY AND KINGS POINT UNDER THE PARTIAL SET-ASIDE PROCUREMENT TO ASCERTAIN WHETHER THERE IS ANY SIMILARITY IN THE BID MODIFICATIONS WHICH MIGHT INDICATE THAT THE TWO PARTIES WERE WORKING IN CONCERT ON THE BIDS, IT HAS BEEN ASCERTAINED FROM THE DEFENSE SUPPLY AGENCY THAT THERE WAS PRACTICALLY NO SIMILARITY. THE KINGS POINT MODIFICATION WAS FILED WITH WESTERN UNION AFTER THE DEMAY COMPANY MODIFICATION. WHEREAS THE KINGS POINT TELEGRAM WAS FILED IN NEW YORK, THE ONE FROM THE DEMAY COMPANY WAS FILED IN NORTH CAROLINA. ALSO, THE BODY OF THE MESSAGES AND THE AMOUNTS OF THE DOLLAR REDUCTIONS INCLUDED IN THE MESSAGES ARE ENTIRELY DIFFERENT. THE ONLY POINT OF SIMILARITY IN BOTH TELEGRAMS IS THAT BOTH BIDDERS STATED THAT ALL THE OTHER TERMS AND CONDITIONS OF THE INVITATION REMAIN UNCHANGED, A STATEMENT WHICH IS NOT UNCOMMON TO BID MODIFICATIONS.

ACCORDINGLY, THERE DOES NOT APPEAR TO BE ANY VALID BASIS FOR DENYING AWARDS TO THE DEMAY COMPANY UNDER THE SUBJECT INVITATIONS. THE PROTESTS ARE THEREFORE DENIED.