B-165219, JAN. 24, 1969

B-165219, JAN. 24, 1969

TO HERBERT BASS, ESQUIRE:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF SEPTEMBER 6 AND DECEMBER 20, 1968, RELATIVE TO THE PROTEST YOU FILED ON BEHALF OF YOUR CLIENT, GIBBS DIE CASTING ALUMINUM CORPORATION (GIBBS), ALLEGING IRREGULARITIES IN THE METHOD OF PROCUREMENT UTILIZED UNDER INVITATIONS FOR BIDS NOS. F33657-69-B -0062 AND F42600-69-B-1068.

THE FIRST MENTIONED IFB WAS ISSUED BY THE AERONAUTICAL SYSTEMS DIVISION (ASD) AND THE SECOND ONE WAS ISSUED BY THE OGDEN AIR MATERIEL AREA (OOAMA), DEPARTMENT OF THE AIR FORCE. BOTH PROCUREMENTS INVOLVED SIMILAR LARGE QUANTITIES OF AN IDENTICAL AMMUNITION PART (METAL PARTS KIT, BOMB BLU-26/B, FRAGMENTATION) AND THE METHOD OF PROCUREMENT UTILIZED WAS SUBSTANTIALLY THE SAME IN EACH SOLICITATION. CONSEQUENTLY, TO SIMPLIFY ANALYSIS, THIS DECISION WILL BE CONFINED TO THE ASD PURCHASE WHICH WAS ISSUED ON JULY 17, 1968.

ACCORDING TO THE REPORT FURNISHED BY THE DEPARTMENT, A COPY OF WHICH WAS TRANSMITTED TO YOU, ASD RECOGNIZED A FORECASTED REQUIREMENT FOR 20 MILLION OF THESE BOMBLETS TO BE DELIVERED IN THREE EQUAL MONTHLY INSTALLMENTS BEGINNING IN JANUARY 1969. TO AFFORD THE MAXIMUM PRACTICABLE OPPORTUNITY FOR BIDDERS, BOTH LARGE AND SMALL, TO PARTICIPATE IN THIS PROCUREMENT, THE IFB REQUESTED PRICES ON EIGHT INCREMENTAL QUANTITIES RANGING FROM 1.5 MILLION TO 20 MILLION. DUE TO THE EXTREMELY LARGE QUANTITIES INVOLVED IN THIS PROCUREMENT, AND BECAUSE IT WAS RECOGNIZED THAT SMALL BUSINESS FIRMS MIGHT NOT BE ABLE TO COMPETE FOR THE TOTAL REQUIREMENT BECAUSE OF LIMITED CAPACITY, NO PART OF THE REQUIREMENT WAS SET ASIDE FOR SMALL BUSINESS AS SUCH, BUT PURSUANT TO THE GOVERNMENT'S POLICY OF ASSISTING SURPLUS LABOR AREA FIRMS 8 MILLION OF THE 20 MILLION UNITS WERE SET ASIDE AND RESERVED "FOR AWARD 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.' UNDER THE PERTINENT PROVISIONS OF SECTIONS 1-802 AND 1- 804.2 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) WHICH WERE SET OUT IN THE IFB, PRIORITY FOR NEGOTIATION OF SUCH SET-ASIDES IS GIVEN TO SMALL BUSINESS FIRMS OVER LARGE BUSINESS IN EACH CLASS OF SURPLUS AREA, AND IN THE EVENT NO SURPLUS AREA FIRMS ARE FOUND ELIGIBLE FOR THE SET- ASIDE, NEGOTIATIONS MAY BE CONDUCTED WITH SMALL BUSINESS FIRMS NOT LOCATED IN SUCH AN AREA. IN ANY CASE, NEGOTIATIONS ARE PERMITTED ONLY WITH FIRMS WHICH HAVE SUBMITTED RESPONSIVE BIDS OR PROPOSALS ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST UNIT PRICE AT WHICH AN AWARD IS MADE ON THE NON-SET-ASIDE PORTION.

WHEN BIDS WERE OPENED ON JULY 30, 1968, IT WAS FOUND THAT OF THE NINE BIDDERS, SIX CERTIFIED THEY WERE SMALL BUSINESS, INCLUDING GIBBS. THERE WERE NO LABOR SURPLUS AREA CONCERNS. IN THE INTERIM, THE TOTAL QUANTITY REQUIRED BY THE AIR FORCE HAD DECREASED FROM 20 MILLION TO 17 MILLION UNITS. THEREFORE, THE NON-SET-ASIDE PORTION WAS FIXED AT 10 MILLION AND THE SET-ASIDE PORTION AT 7 MILLION. THE NON-SET-ASIDE QUANTITY WAS AWARDED TO HONEYWELL, INC., A LARGE BUSINESS FIRM, AT ITS LOW BID OF $ .25608 EACH. AWARD OF THE REMAINING QUANTITY WAS MADE AT THE PRICE OF $ .2819 OFFERED BY DOEHLER-JARVIS, DIVISION OF THE NATIONAL LEAD CORPORATION, ALSO A LARGE BUSINESS.

SINCE NEITHER GIBBS, WITH A SINGLE BID OF $ .333 EACH FOR THE SMALLEST INCREMENTAL QUANTITY OF 1.2 MILLION THROUGH 1.8 MILLION UNITS, NOR ANY OF THE OTHER SMALL BUSINESS BIDDERS, OFFERED A PRICE NOT GREATER THAN 120 PERCENT OF THE $ .25608 NON-SET-ASIDE ADJUSTED AWARD PRICE, THE CONTRACTING OFFICER DID NOT NEGOTIATE WITH GIBBS OR ANY OTHER SMALL BUSINESS FIRM FOR THE SET-ASIDE PORTION.

YOU CONTEND THAT THE REASON NO SMALL BUSINESS CONCERN QUALIFIED UNDER THE SET-ASIDE PROVISIONS OF THE INSTANT PROCUREMENT IS THAT BY ALLOWING BIDS ON VARIOUS QUANTITY INCREMENTS, ALL TO BE DELIVERED WITHIN A FIXED PERIOD OF TIME, THE INVITATION ENABLED LARGE BUSINESS FIRMS TO BID ON A GREATER MONTHLY PRODUCTION RATE, WITH THE NORMAL ATTENDANT LOWER UNIT PRICE THAT RESULTS THEREFROM. AS A CONSEQUENCE, THE SMALL BUSINESS FIRM WITH A SMALLER MONTHLY PRODUCTION RATE IS OBLIGATED TO COMPETE IN AN UNFAIR MARKET SITUATION. THIS IS CLAIMED TO BE INCONSISTENT WITH ASPR 1-804.2, WHICH PROVIDES THAT "DELIVERY TERMS AND OTHER TERMS APPLICABLE TO THE SET- ASIDE PORTION OF AN ITEM AND THOSE APPLICABLE TO THE NON-SET-ASIDE PORTION SHALL BE COMPARABLE," AND THAT THE METHODS OF PROCUREMENT UTILIZED IN THE TWO REFERENCED SOLICITATIONS ARE ILLEGAL, AND ARE NOT CONSISTENT WITH THE STATED PURPOSE OF THE SMALL BUSINESS ACT, SINCE SUCH METHODS WILL NOT ACCOMPLISH THE STATED OBJECTIVES.

AS STATED ABOVE, THE SET-ASIDE IN THE SUBJECT PROCUREMENT WAS NOT MADE UNDER THE SMALL BUSINESS ACT, AND THE POLICY OF THAT ACT WAS APPLICABLE ONLY TO THE EXTENT THAT PREFERENCE WAS TO BE GIVEN TO A SMALL BUSINESS OVER A LARGE BUSINESS IN CASE ALL OTHER FACTORS WERE EQUAL. THE PROCUREMENT WAS SUBJECT TO THE STATUTORY RESTRICTION INCLUDED IN EVERY ANNUAL APPROPRIATION ACT FOR THE DEFENSE DEPARTMENT SINCE 1953, THAT NONE OF THE FUNDS APPROPRIATED SHOULD BE USED FOR THE PAYMENT OF A PRICE DIFFERENTIAL ON CONTRACTS MADE FOR THE PURPOSE OF RELIEVING ECONOMIC DISLOCATIONS. IN KEEPING WITH THE INTENT OF THIS PROVISION THE PERTINENT REGULATIONS REQUIRE AS A PREREQUISITE TO THE SETTING ASIDE OF ANY PORTION OF A PROCUREMENT FOR AWARD TO LABOR SURPLUS AREA CONCERNS THAT THE PROCUREMENT BE SEVERABLE INTO TWO OR MORE ECONOMIC PRODUCTION RUNS OR CONVENIENT QUANTITIES. UNDER THESE STATUTORY AND REGULATORY PROVISIONS IT WOULD BE IMPROPER TO SET ASIDE SO SMALL A PORTION OF A PROCUREMENT THAT THE COST THEREOF COULD NOT REASONABLY BE EXPECTED TO BE AS LOW AS THE COST WHICH WOULD BE EXPECTED TO BE PAID IF NONE WERE SET ASIDE, OR OTHERWISE TO SOLICIT BIDS OR PROPOSALS IN SUCH A WAY AS TO PREVENT THE GOVERNMENT'S REALIZATION OF THE MOST FAVORABLE PRICES FOR ITS KNOWN NEEDS.

WHILE THE PURPOSE OF THE INCREMENTAL BREAKDOWN WAS TO PERMIT BIDS ON LESS THAN THE TOTAL QUANTITY REQUIRED TO BE SUBMITTED BY BIDDERS WHO MAY NOT HAVE HAD THE PLANT CAPACITY TO PRODUCE THE TOTAL REQUIREMENT WITHIN THE TIME REQUIRED, IT NEVERTHELESS REMAINED THE DUTY OF THE CONTRACTING OFFICER TO ACCEPT THE BID OR BIDS OFFERING THE LOWEST PRICES TO THE GOVERNMENT FOR THE QUANTITY TO BE PROCURED. FAILURE OF ANY LABOR SURPLUS AREA OR SMALL BUSINESS BIDDER TO SUBMIT A BID WITHIN 120 PERCENT OF THE NON-SET-ASIDE AWARD PRICE EFFECTED AUTOMATIC CANCELLATION OF THE SET- ASIDE.

AS TO THE DELIVERY PROVISIONS, WE BELIEVE THAT WHEN DELIVERIES ARE REQUIRED WITHIN A DEFINITE PERIOD TO MEET THE GOVERNMENT'S NEEDS, IT BECOMES NECESSARY THAT DELIVERIES ON ANY PARTIAL QUANTITIES AWARDED BE PRORATED OVER THE SAME PERIOD, AND THIS DOES NOT OPERATE TO PREVENT AN EQUAL EVALUATION OF BIDS. THE GOVERNMENT IS UNDER NO OBLIGATION TO VARY THE DELIVERY TERMS NEEDED TO MEET ITS REQUIREMENTS MERELY TO FAVOR A PREFERRED CLASS OF BIDDERS FOR WHOM A SET-ASIDE IS MADE, AND OUR STUDY OF THE INVITATION DOES NOT REVEAL ANY INCOMPARABILITY CONCERNING DELIVERY TERMS BETWEEN THE NON-SET-ASIDE PORTION AND THE SET-ASIDE PORTION.

UNDER THE APPLICABLE LAW AND REGULATIONS ABOVE CITED, THE GOVERNMENT COULD NOT PROPERLY HAVE SO SPLIT THIS PROCUREMENT AS TO PRECLUDE A BIDDER FROM BIDDING ON THE TOTAL REQUIREMENT IF IT WAS CAPABLE OF PRODUCING THE TOTAL REQUIREMENT AT A LOWER COST. WHILE IT MAY BE TRUE THAT A LARGE BUSINESS FIRM MAY BE ABLE TO BID ON A GREATER MONTHLY PRODUCTION RATE AT LOWER PRICES THAN A SMALL BUSINESS, THIS IS A LOGICAL CONDITION WHICH COULD EXIST IN ANY PROCUREMENT AND IS NOT A CONDITION CAUSED BY THE METHOD OF PROCUREMENT UTILIZED IN THIS INSTANCE. WE CANNOT AGREE THAT THE PROVISIONS OF THE INVITATION ARE INCONSISTENT WITH ASPR OR WITH THE GOVERNMENT'S POLICY OF ENCOURAGING PARTICIPATION OF SMALL BUSINESS CONCERNS.

IN THESE PROCUREMENTS WE BELIEVE THAT THE GOVERNMENT MADE EVERY REASONABLE EFFORT, CONSISTENT WITH ITS NEEDS, TO ENABLE CONCERNS IN LABOR SURPLUS AREAS AND SMALL BUSINESS FIRMS TO COMPETE WITH OTHER BUSINESS CONCERNS. THE FACT THAT THESE EFFORTS DID NOT RESULT IN ANY AWARD TO SUCH CONCERNS FOR A PORTION OF THE QUANTITY DOES NOT RENDER THE SOLICITATIONS IMPROPER OR THE AWARDS AS MADE ILLEGAL.

WE ARE PLEASED TO REPORT THAT WE HAVE BEEN ADVISED THAT BECAUSE SUBSTANTIAL ADDITIONAL REQUIREMENTS HAVE BEEN GENERATED, THE AIR FORCE IS CURRENTLY UNDERTAKING TO NEGOTIATE CONTRACTS, PURSUANT TO ASPR 3 202.2 AND 3-216, FOR TEN MILLION OF THE ADDITIONAL REQUIREMENTS WITH SOLICITATIONS LIMITED SOLELY TO SMALL BUSINESS CONCERNS, INCLUDING GIBBS. UNDER THE AUTHORITY OF 10 U.S.C. 2304 (A) (16), WE UNDERSTAND THAT THIS PROCUREMENT WILL PROVIDE FOR UNRESTRICTED BIDDING BY SMALL BUSINESS CONCERNS ON 50 PERCENT OF THE ITEMS. IN ADDITION, IT WILL SET ASIDE THE REMAINING 50 PERCENT FOR SUBSEQUENT NEGOTIATIONS WITH SMALL BUSINESS FIRMS WHICH SUBMITTED PROPOSALS FOR THE NON-SET-ASIDE PORTION, BUT DID NOT RECEIVE AN AWARD, WITH THE ULTIMATE PURPOSE OF AWARDING TWO OR MORE CONTRACTS TO SMALL BUSINESS CONCERNS, AS PART OF A PROGRAM TO MAINTAIN A MOBILIZATION BASE FOR SELECTED ITEMS OF AIR MUNITIONS.

FOR THE REASONS STATED, WE FIND NO LEGAL BASIS FOR OBJECTING TO THE ACTION OF THE PURCHASING AGENCY, AND THE PROTEST IS THEREFORE DENIED.