B-211406, APR 24, 1984

B-211406, APR 24, 1984

DIGEST: 1. ARMY ARGUES THAT PROTESTER, ALLEGEDLY A LARGE BUSINESS, IS NOT INTERESTED PARTY TO CHALLENGE SOLE-SOURCE CONTRACT UNDER GAO'S BID PROTEST PROCEDURES BECAUSE PROTESTER WOULD HAVE BEEN INELIGIBLE TO COMPETE UNDER SMALL BUSINESS SET-ASIDE WHICH ALLEGEDLY WOULD HAVE BEEN ISSUED IF SOLE-SOURCE PROCUREMENT HAD NOT BEEN MADE. GAO REJECTS ARMY'S ARGUMENT AS SPECULATIVE SINCE THERE DOES NOT APPEAR TO HAVE BEEN AT LEAST TWO RESPONSIBLE SMALL BUSINESS CONCERNS CAPABLE OF MEETING THE GOVERNMENT'S DELIVERY SCHEDULE SO AS TO JUSTIFY A SET-ASIDE. 2. GAO QUESTIONS SOLE-SOURCE ARMY CONTRACT WHERE ARMY WAS ON NOTICE OF PROTESTER'S CLAIM OF SUFFICIENT PRODUCTION CAPACITY TO COMPETE FOR CONTRACT NEARLY 7 WEEKS BEFORE ARMY BEGAN SOLE-SOURCE NEGOTIATIONS, BUT ARMY DID NOT INVESTIGATE PROTESTER'S CLAIM.

MARTIN ELECTRONICS, INC.:

MARTIN ELECTRONICS, INC. (MARTIN), PROTESTS THE SOLE-SOURCE AWARD OF DELIVERY ORDER NO. 4 UNDER CONTRACT NO. DAAA09-81-G-0016 TO ACTION MANUFACTURING, INC. (ACTION), BY THE UNITED STATES ARMY MATERIEL DEVELOPMENT AND READINESS COMMAND (ARMY). THE CONTRACT IS FOR M781 PRACTICE ROUNDS FOR GRENADE LAUNCHERS. WE SUSTAIN THE PROTEST.

A THRESHOLD QUESTION MUST BE DISCUSSED FIRST. THE ARMY ARGUES THAT MARTIN IS NOT AN INTERESTED PARTY TO CHALLENGE THE SOLE-SOURCE CONTRACT UNDER OUR BID PROTEST PROCEDURES. THE ARMY POINTS OUT THAT MARTIN IS CONSIDERED TO BE OTHER THAN A SMALL BUSINESS. THE ARMY ARGUES THAT HAD THIS PROCUREMENT NOT BEEN MADE ON A SOLE-SOURCE BASIS, IT WOULD HAVE BEEN MADE ON A COMPETITIVE SMALL BUSINESS SET-ASIDE BASIS UNDER WHICH MARTIN COULD NOT HAVE COMPETED.

IN REPLY, MARTIN CONTENDS THAT THE ARMY WOULD NEVER HAVE PERMITTED A SET- ASIDE PROCUREMENT BECAUSE SUCH A SET-ASIDE WOULD HAVE INVOLVED THE PAYMENT OF AN UNREASONABLE PRICE - GIVEN RECENT PRICING HISTORY FOR THE ITEM.

WE REJECT THE ARMY'S POSITION THAT MARTIN IS NOT AN INTERESTED PARTY TO CHALLENGE THE SOLE-SOURCE PROCUREMENT. WHETHER THE ARMY ACTUALLY WOULD HAVE CONDUCTED THE SUBJECT REQUIREMENT AS A SMALL BUSINESS SET ASIDE (IN THE ABSENCE OF THE SOLE-SOURCE APPROACH ACTUALLY TAKEN) IS SPECULATIVE, IN OUR VIEW, ESPECIALLY GIVEN MARTIN'S ALLEGATION THAT A SET-ASIDE AWARD WOULD HAVE INVOLVED THE PAYMENT OF AN UNREASONABLE PRICE. MOREOVER, IT IS THE ARMY'S APPARENT POSITION THAT ACTION WAS THE ONLY SMALL BUSINESS CONCERN CAPABLE OF DELIVERING THE REQUIREMENT WITHIN THE NEEDED TIME. CONSEQUENTLY, THERE WOULD NOT APPEAR TO HAVE BEEN AT LEAST TWO RESPONSIBLE SMALL BUSINESS CONCERNS CAPABLE OF MEETING THE GOVERNMENT'S NEEDS SO AS TO JUSTIFY A SET-ASIDE. SEE DEFENSE ACQUISITION REGULATION SEC. 1- 706.1(B)(I) (DEFENSE ACQUISITION CIRCULAR NO. 76-40, NOVEMBER 26, 1982).

IN DECEMBER 1982, THE ARMY AWARDED A CONTRACT FOR THE PRODUCTION OF M781 ROUNDS TO MARYLAND ASSEMBLIES, INC. (MAI), A SMALL BUSINESS. THE COMPETITION FOR THE CONTRACT HAD BEEN CONDUCTED AS A "50 PERCENT SMALL BUSINESS SET-ASIDE." MARTIN, A FORMER PRODUCER OF M781 ROUNDS, IS A SUBCONTRACTOR TO MAI; MARTIN PRODUCES THE M781 COMPONENTS AND DELIVERS THEM TO MAI FOR FINAL ASSEMBLY. THE CONTRACT REQUIRES DELIVERIES AT THE RATE OF ABOUT 200,000 ROUNDS PER MONTH.

IN DECEMBER 1982, THE ARMY ALSO DETERMINED THAT ITS THEN CURRENT STOCK OF ROUNDS WOULD BE EXHAUSTED BY JUNE 1983. THE AIR FORCE, WHICH ACQUIRES THESE ROUNDS THROUGH THE ARMY, ALSO HAD AN URGENT REQUIREMENT. THE ARMY INFORMS US THAT: (1) THESE COMBINED REQUIREMENTS WERE CONSIDERED "RECEIVED" BY DECEMBER 16, 1982; (2) FUNDS FOR THE REQUIREMENT WERE MADE AVAILABLE ON JANUARY 31, 1983; (3) NEGOTIATIONS WERE HELD WITH ACTION STARTING ON FEBRUARY 3, 1983; AND (4) THE SOLE-SOURCE AWARD WAS MADE TO ACTION ON FEBRUARY 11, 1983.

THE ARMY JUSTIFIED THE SOLE-SOURCE AWARD TO ACTION UNDER A FEBRUARY 3, 1983, DETERMINATION, WHICH READS:

"... AS A PREVIOUS PRODUCER, ACTION MANUFACTURING COMPANY IS THE ONLY COMPANY THAT CAN MEET THE REQUIRED DELIVERY DATE OF JUNE 1983. MARTIN ELECTRONICS, THE ONLY OTHER PAST PRODUCER, IS PROVIDING ALL OF THE MAJOR COMPONENTS TO MARYLAND ASSEMBLIES UNDER CONTRACT DAAA09-82-C-7235. MARTIN ELECTRONICS CANNOT PRODUCE THE REQUIRED QUANTITIES OF 95,000 PER MONTH WITH THEIR LIMITED REMAINING CAPACITY OF 20,000 PER MONTH. ACTION'S PRODUCTION LEAD TIME IS CONSIDERABLY SHORTER THAN NORMAL BECAUSE OF AN IN-HOUSE MOLDING CAPABILITY AND BECAUSE NO MATERIEL RELEASE IS REQUIRED FOR ACTION UNLIKE MAI. CONSEQUENTLY, ACTION MANUFACTURING COMPANY IS THE ONLY FIRM WITH THE CAPACITY AND CAPABILITY TO MEET THE REQUIRED DELIVERY DATE OF JUNE 1983."

THE ARMY EXPLAINS THAT ITS JUDGMENT THAT MARTIN LACKED THE REQUIRED ADDITIONAL CAPACITY (95,000 PER MONTH) WAS BASED ON A SEPTEMBER 1982 PREAWARD SURVEY WHICH CONCLUDED THAT MARTIN HAD A CAPACITY OF 11,000 UNITS PER DAY, 220,000 ITEMS PER MONTH ON A "THREE SHIFTS PER 8-HOUR DAY, 5 DAY- A-WEEK" OPERATION (20 DAYS PER MONTH). SINCE MARTIN WAS OBLIGATED TO PROVIDE 200,000 ITEMS OF ITS MONTHLY CAPACITY TO MAI, THE CONTRACTING OFFICER CONCLUDED THAT MARTIN'S ASSUMED EXCESS CAPACITY OF 20,000 ITEMS FELL 75,000 ITEMS SHORT OF COVERING THE 95,000-ITEMS-PER MONTH CAPACITY NEEDED FOR THE ADDITIONAL REQUIREMENT. GIVEN THESE FACTS, THE CONTRACTING OFFICER CONCLUDED THAT IT WOULD HAVE BEEN "UNREASONABLE TO CONDUCT YET ANOTHER INVESTIGATION INTO MARTIN'S CAPACITY." THE CONTRACTING OFFICER ASSERTS THAT THE ARMY WAS "AWARE OF MARTIN'S CAPABILITIES BUT NO NEW INFORMATION SURFACED AT THE TIME (FEBRUARY 11, 1983) OF ACTION'S AWARD WHICH INDICATED THAT MARTIN HAD INCREASED CAPACITY FOR PRODUCTION."

MARTIN ALLEGES THAT IT INFORMED THE ARMY'S CONTRACT SPECIALIST OF ITS CAPACITY TO PERFORM THE SOLE-SOURCE CONTRACT NEARLY 7 WEEKS BEFORE THE ARMY BEGAN SOLE-SOURCE NEGOTIATIONS WITH ACTION. MARTIN ALSO ALLEGES THAT THE ARMY'S CONTRACT SPECIALIST MISLED MARTIN ABOUT THE STATUS AND FUNDING OF THE SOLE-SOURCE AWARD.

SPECIFICALLY, MARTIN HAS DESCRIBED A SERIES OF CONVERSATIONS (OCCURRING ON: DECEMBER 20, 1982; JANUARY 5, 1983; FEBRUARY 4, 1983; AND FEBRUARY 14, 1983) WHICH ALLEGEDLY SUPPORT ITS POSITION. THE ARMY HAS NOT DENIED THAT THESE CONVERSATIONS TOOK PLACE OR THAT MARTIN HAS MISREPRESENTED THE CONTENT OF THESE CONVERSATIONS.

THE MOST IMPORTANT CONVERSATION TOOK PLACE ON DECEMBER 20, 1982, IN WHICH MARTIN INFORMED THE ARMY EMPLOYEE THAT MARTIN'S PRODUCTION "COULD BE 300,000-400,000 ITEMS PER MONTH" (OR AT A RATE WHICH WOULD HAVE MADE MARTIN ELIGIBLE FOR THE ADDITIONAL REQUIREMENT). IN REPLY, THE ARMY EMPLOYEE TOLD MARTIN THAT THE ARMY WOULD CONSIDER PLACING THE URGENT REQUIREMENT BY EXERCISING AN OPTION IN MAI'S CONTRACT - UNDER WHICH MARTIN WOULD ACTUALLY SUPPLY ALL MAJOR COMPONENTS OF THE ITEMS TO MAI. THE ARMY DOES NOT DENY THAT ITS EMPLOYEE WAS TOLD ABOUT THIS PRODUCTION CLAIM, BUT NOW ASSERTS THAT MARTIN'S CLAIM IS "SELF-SERVING AND INACCURATE." THE ARMY ALSO ADMITS THAT ITS EMPLOYEE DID INFORM MARTIN ABOUT THE POSSIBILITY OF EXERCISING MAI'S OPTION.

MARTIN EXPLAINS THAT ITS CLAIM OF "300,000-400,000 PER MONTH" WAS BASED ON "6 AND/OR 7 DAY PRODUCTION SCHEDULES AND ON UTILIZING ADDITIONAL CASTING DIES WHICH IT SAYS IT HAS IN ITS POSSESSION."

WE THINK THE ARMY WAS REMISS IN FAILING TO AT LEAST TALK TO MARTIN ABOUT THE BASIS FOR THE COMPANY'S DECEMBER 20 PRODUCTION CLAIM. CERTAINLY, THE ARMY HAD ENOUGH TIME BOTH TO FIND OUT - DIRECTLY FROM MARTIN - THE PRECISE REASONS FOR MARTIN'S DECEMBER 20 CLAIM AND TO EVALUATE THOSE REASONS BEFORE COMMENCING NEGOTIATION WITH ACTION ON FEBRUARY 3. GIVEN THE ARMY'S FAILURE TO PUT FORTH THIS MINIMAL EFFORT, WE CANNOT SAY THAT THE ARMY WAS JUSTIFIED IN AWARDING THE SOLE-SOURCE CONTRACT.

SURELY, MARTIN COULD NOT BE BLAMED FOR ASSUMING THAT THE ARMY HAD NO QUESTIONS ABOUT ITS DECEMBER 20 PRODUCTION CLAIM OF 300,000-400,000 ITEMS PER MONTH - IN THE ABSENCE OF FURTHER ARMY INQUIRIES - GIVEN THE ARMY EMPLOYEE'S ASSERTION THAT AN AWARD TO MARTIN'S PRIME CONTRACTOR WOULD BE CONSIDERED AND GIVEN THE ARMY'S SUBSEQUENT CONVERSATIONS WITH MARTIN IN WHICH MARTIN WAS LED TO BELIEVE - EVEN AFTER THE SOLE-SOURCE AWARD HAD BEEN MADE - THAT THE ARMY HAD NOT EVEN RECEIVED FUNDING FOR THE REQUIREMENT.

ALTHOUGH THE PROTESTED CONTRACT WAS SCHEDULED TO BE COMPLETED IN FEBRUARY 1984 - THUS PRECLUDING ANY ACTION WHICH MIGHT LEAD TO ITS TERMINATION - WE ARE RECOMMENDING TO THE SECRETARY OF THE ARMY THAT PROSPECTIVE CONTRACTORS' PRODUCTION CLAIMS BE EXAMINED - WHERE TIME PERMITS AS IN THIS PROCUREMENT - BEFORE ANY FUTURE SOLE-SOURCE PROCUREMENT DECISIONS ARE MADE.

FINALLY, WE NOTE THAT THE ARMY DOES NOT DENY THAT ITS CONTRACT SPECIALIST MISINFORMED MARTIN AS TO THE AVAILABILITY OF FUNDS FOR THIS SOLE-SOURCE PROCUREMENT. THE ARMY EXPLAINS THAT THE MISSTATEMENTS WERE MADE IN ORDER TO PRECLUDE DISCLOSURE OF INFORMATION DURING THE PREAWARD PHASE WITH ACTION. WHILE WE APPRECIATE THE NEED FOR AN AGENCY TO PROTECT RESTRICTED PROPRIETARY INFORMATION FROM DISCLOSURE, WE FAIL TO SEE HOW THE INFORMATION SOUGHT BY MARTIN WAS PROPRIETARY OR RESTRICTIVE. MOREOVER, WE DO NOT THINK A FIRM SHOULD BE GIVEN INCORRECT INFORMATION IN ORDER TO PROTECT THE PREAWARD PHASE OF A PROCUREMENT. IT IS POSSIBLE TO PROTECT THE PREAWARD PHASE OF A PROCUREMENT WITHOUT MISINFORMING THOSE SEEKING INFORMATION.

WE SUSTAIN THE PROTEST.