B-148155, MAY 17, 1962

B-148155, MAY 17, 1962

TO CHANDLER EVANS CORPORATION:

YOUR TELEGRAM AND LETTER, DATED FEBRUARY 9 AND 13, 1962, RESPECTIVELY, PROTEST THE AWARD OF A CONTRACT, SET ASIDE FOR SMALL BUSINESS UNDER INVITATION FOR BIDS 41-608-62-194, TO SOUTHWEST AIR MOTIVE COMPANY, HEREINAFTER REFERRED TO AS SOUTHWEST. THE INVITATION SOLICITED BIDS FOR THE OVERHAULING, MODIFICATION, AND TECHNICAL ORDER COMPLIANCE FOR AN INDEFINITE QUANTITY OF CERTAIN SPARE PARTS FOR J-33, J-35, J-47 AND J-73 ENGINES. IT WAS DETERMINED BEFORE ISSUANCE OF THE INVITATION THAT THE PROCURING AGENCY COULD REASONABLY EXPECT TO OBTAIN BIDS FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WOULD BE MADE AT REASONABLE PRICES.

OF THE 53 SMALL BUSINESS FIRMS WHICH WERE SOLICITED, 3 RESPONSIVE BIDS WERE RECEIVED ON GROUP II, THE ONLY GROUP OF ITEMS IN THE INVITATION WHICH ARE RELEVANT TO THIS PROTEST. YOU CONTEND THAT SOUTHWEST IS A NONRESPONSIVE SMALL BUSINESS BIDDER BECAUSE IT DOES NOT HAVE THE FACILITIES OR CAPABILITY TO PERFORM. THE BASIS FOR THIS CONTENTION IS (1) THE FACT THAT SOUTHWEST INTENDS TO SUBCONTRACT ITEM 8 OF GROUP II TO CINCINNATI AIRCRAFT SERVICE SHOP, APPARENTLY A SUBSIDIARY OF GENERAL ELECTRIC, AND (2) THE ALLEGATION THAT THE LARGE BUSINESS INVOLVED DOES NOT HAVE THE CAPABILITY TO PERFORM. YOU ALSO ASK IF IT IS "THE INTENT OF A SMALL BUSINESS SET ASIDE TO LET THE RESPONSIVE BIDDER (SOUTHWEST) SUBCONTRACT APPROXIMATELY 76 PERCENT OF AN AWARD TO A LARGE BUSINESS AS A SOLE SOURCE, NON COMPETITIVE ACTION? " HOWEVER, WE NOTE THAT YOU CITE NO LAW OR REGULATION WHICH PROHIBITS SUBCONTRACTING IN THESE CIRCUMSTANCES, AND DO NOT EXPLAIN HOW YOU ARRIVED AT THE FIGURE OF 76 PERCENT OF AN INDEFINITE QUANTITY. THE ADMINISTRATIVE AGENCY REPORTS THAT OF THE AMOUNT NOW ANTICIPATED AS REQUIRED, SOUTHWEST WILL SUBCONTRACT APPROXIMATELY 48 PERCENT.

IN CONTRACTS AWARDED BY UNRESTRICTED COMPETITION, THERE IS GENERALLY NO LEGAL INTERDICTION TO SUBCONTRACTS MADE BY THE PRIME GOVERNMENT CONTRACTOR. SEE 34 COMP. GEN. 595. THE RESTRICTION ON COMPETITION IN THE INSTANT CASE, WHEREBY THE ONLY PRIME CONTRACTORS ELIGIBLE FOR AWARD WERE SMALL BUSINESS CONTRACTORS, IS SPECIFICALLY REQUIRED UNDER THESE CIRCUMSTANCES BY STATUTORY LAWS AND REGULATIONS ISSUED PURSUANT TO THOSE LAWS. SEE SECTION 15 OF THE SMALL BUSINESS ACT OF 1958, 72 STAT. 395, 15 U.S.C. 644, AND 10 U.S.C. 2301. ALTHOUGH WE HELD IN 37 COMP. GEN. 678 THAT NEITHER OF THESE ACTS PRECLUDES THE PROMULGATION OF A REGULATION WHICH WOULD PRESERVE FOR SMALL BUSINESS ALL SUBCONTRACT WORK LET UNDER A SET-ASIDE AWARD, OUR OFFICE WOULD NOT BE AUTHORIZED, WITHOUT SUCH A REGULATION, TO REQUIRE THE REJECTION OF SOUTHWEST'S BID OR THE CANCELLATION OF ITS CONTRACT. WE ALSO STATED IN THAT DECISION THAT A REGULATION, LIMITING THE AMOUNT OF WORK WHICH CONTRACTORS THAT RECEIVED SET-ASIDE AWARDS COULD SUBCONTRACT TO BIG BUSINESS, WOULD SEEM TO FURTHER BOTH THE SPIRIT AND INTENT OF THE STATUTES AFFECTING SMALL BUSINESS PARTICIPATION IN GOVERNMENT CONTRACTING. HOWEVER, THE POWER TO ISSUE SUCH A REGULATION IS NOT WITHIN THE JURISDICTION OF THIS OFFICE, AND NOTHING IN EITHER ACT AFFIRMATIVELY STATES OR IMPLIES THAT SUCH A LIMITATION IS NECESSARILY CONCOMITANT WITH CONGRESSIONAL INTENT. 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. IN THE INSTANT CASE, WE CAN FIND NO LAW, REGULATION, OR CONTRACT PROVISION, WHICH IS INCONSISTENT WITH SOUTHWEST'S SUBCONTRACTING ANY PART OF ITS CONTRACT TO A LARGE BUSINESS.

YOU CONTEND THAT THE SUBCONTRACTOR IS NOT CAPABLE OF PERFORMING THE CONTRACT. THE PROVISION IN THE INVITATION WHICH IS APPLICABLE TO THE RESPONSIBILITY OF SUBCONTRACTORS PROVIDES:

"5. FINANCIAL AND TECHNICAL ABILITY:

"IF THE BID OR PROPOSAL SUBMITTED IN RESPONSE TO THIS INVITATION IS FAVORABLY CONSIDERED, A SURVEY TEAM MAY CONTACT YOUR FACILITY FOR THE PURPOSE OF DETERMINING YOUR TECHNICAL AND FINANCIAL ABILITY TO PERFORM. CURRENT FINANCIAL STATEMENTS AND OTHER DATA PERTINENT TO THIS PURPOSE SHOULD BE AVAILABLE AT THAT TIME IF NOT ALREADY ON FILE WITH THE AIR MATERIEL COMMAND. THE TEAM WILL ALSO EVALUATE YOUR SYSTEM FOR DETERMINING THE FINANCIAL AND TECHNICAL ABILITY OF YOUR PROPOSED SUBCONTRACT OR PROCUREMENT SOURCES TO PERFORM. EXAMPLES OF THE TYPE OF TECHNICAL, FINANCIAL AND OTHER CAPABILITY MATTERS THE SURVEY TEAM VISITING YOUR FACILITY WILL EVALUATE ARE GIVEN BELOW.'

THIS PROVISION IS IN ACCORDANCE WITH THE REQUIREMENTS OF 1-906 ASPR, WHICH PROVIDES:

"SUBCONTRACTOR RESPONSIBILITY. TO THE EXTENT THAT A PROSPECTIVE CONTRACTOR PROPOSES TO PERFORM THE CONTRACT BY SUBCONTRACTING, DETERMINATIONS OF PROSPECTIVE SUBCONTRACTORS' RESPONSIBILITY MAY BE NECESSARY IN ORDER TO DETERMINE THE RESPONSIBILITY OF THE PROSPECTIVE PRIME CONTRACTOR. DETERMINATIONS CONCERNING PROSPECTIVE SUBCONTRACTORS' RESPONSIBILITY SHALL GENERALLY BE A FUNCTION PERFORMED BY PROSPECTIVE PRIME CONTRACTORS. (BUT SEE 1-603 (C) AND 1-605.3 (B) RELATING TO APPROVAL OF SUBCONTRACTORS LISTED ON THE JOINT CONSOLIDATED LIST OF DEBARRED, INELIGIBLE, AND SUSPENDED CONTRACTORS.) PROSPECTIVE PRIME CONTRACTORS MAY BE REQUIRED TO (I) INDICATE THE RESPONSIBILITY OF PROPOSED SUBCONTRACTORS IN WRITING, OR (II) SHOW EVIDENCE OF AN ACCEPTABLE AND EFFECTIVE PURCHASING AND SUBCONTRACTING SYSTEM ENCOMPASSING A METHOD FOR DETERMINING SUBCONTRACTOR CAPABILITY.'

THE ADMINISTRATIVE AGENCY STATES THAT AWARD OF THE CONTRACT WAS BASED ON THE FACILITY CAPABILITY REPORT WHICH TOOK INTO CONSIDERATION THAT ITEM 8 WAS TO BE SUBCONTRACTED. NOTHING IN THE RECORD INDICATES THAT THE AGENCY FAILED TO FOLLOW THE ARMED SERVICES PROCUREMENT REGULATION OR THE PROVISION IN THE INVITATION, AND WITHOUT EVIDENCE TO THE CONTRARY, WE ASSUME THAT SOUTHWEST'S SYSTEM FOR DETERMINING THE FINANCIAL AND TECHNICAL ABILITY OF ITS POTENTIAL SUBCONTRACTOR WAS EVALUATED AND APPROVED. FURTHERMORE, NO CONDITION IN THE INVITATION OR CONTRACT REQUIRED THE CONTRACTING OFFICER TO DETERMINE AND APPROVE THE ACTUAL QUALIFICATIONS OF THE SUBCONTRACTOR. SEE 37 COMP. GEN. 544.

IT FOLLOWS THAT THE ADMINISTRATIVE AGENCY DID EVERYTHING WHICH THE LAW REQUIRED IT TO DO IN DETERMINING THE CAPABILITIES OF THE PRIME AND SUBCONTRACTORS, AND THAT SOUTHWEST'S SUBCONTRACTING TO A BIG BUSINESS OF A PORTION OF THE WORK REQUIRED BY THE GOVERNMENT WAS NOT IMPROPER UNDER EXISTING STATUTES AND REGULATIONS.

IN A LETTER TO THIS OFFICE DATED APRIL 11, 1962, YOU ALLEGE THAT THERE WERE NO COMPETITIVE BIDS AND APPARENTLY NO SMALL BUSINESS FIRMS WITH CAPABILITIES, AND THEREBY IMPLY THAT SOUTHWEST RECEIVED AN EFFECTIVE EXCLUSIVE ON THE CONTRACT. IN THIS REGARD, YOUR ATTENTION IS DIRECTED TO OUR DECISION B-147876, DATED APRIL 19, 1962, WHERE, AS IN THE INSTANT CASE, THREE RESPONSIVE SMALL BUSINESS BIDS WERE RECEIVED, THE LOWEST OF WHICH WAS HIGHER THAN ONE SUBMITTED BY A BIG BUSINESS FIRM. THERE WE MADE THE FOLLOWING OBSERVATIONS, WHICH WE BELIEVE ARE APPLICABLE TO YOUR PROTEST:

"THE REGULATION RELEVANT TO SET-ASIDES IS FOUND AT 13 CFR 127.15-2 (A). IT WAS ISSUED BY THE SMALL BUSINESS ADMINISTRATION UNDER AUTHORITY OF THE SMALL BUSINESS ACT OF 1958, 72 STAT. 385, 15 U.S.C. 634 (B) (6), AND PROVIDES IN PART:

" "/2) WHEN A PROCUREMENT OR A CLASS OF PROCUREMENTS MEETS ONE OR MORE OF THE STATUTORY CRITERIA AND THERE ARE SUFFICIENT NUMBERS OF SMALL BUSINESS CONCERNS CONSIDERED CAPABLE OF FURNISHING THE PROPERTY OR SERVICES, AT FAIR AND REASONABLE PRICES, SBA REPRESENTATIVES WILL INITIATE SMALL BUSINESS SET-ASIDES. * * *

" "/3) IN A 100 PERCENT SET-ASIDE, THE ENTIRE PROCUREMENT IS RESTRICTED TO SMALL BUSINESS CONCERNS AND BIDS OR QUOTATIONS BY LARGE FIRMS WILL BE REJECTED AS NONRESPONSIVE. IT IS SBA POLICY TO REQUEST 100 PERCENT SET- ASIDES WHEN THERE IS REASONABLE EXPECTATION THAT BIDS OR PROPOSALS MAY BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES.'

"GENERAL SERVICES ADMINISTRATION DOES NOT AGREE THAT THE SET-ASIDE GAVE SHILSTONE TESTING LABORATORY AN EFFECTIVE EXCLUSIVE ON THE CONTRACT. POINTS OUT THAT THREE RESPONSIVE BIDS WERE RECEIVED, THE LOWEST OF WHICH WAS QUITE COMPETITIVE WITH THE ONE YOU SUBMITTED. THERE IS NO REQUIREMENT THAT PRICES OFFERED UNDER A SMALL BUSINESS SET ASIDE PROCUREMENT BE EQUAL TO OR BETTER THAN PRICES WHICH MIGHT REASONABLY HAVE BEEN ANTICIPATED AS A RESULT OF UNRESTRICTED COMPETITION. 38 COMP. GEN. 744. THE REGULATION REQUIRES ONLY "FAIR AND REASONABLE PRICES," AND THE BID OF SHILSTONE TESTING LABORATORY WAS ACCEPTED ONLY AFTER DETERMINATION THAT THE PRICE TO BE PAID BY THE GOVERNMENT WAS REASONABLE FOR THE SERVICES TO BE RENDERED.

"WE CAN FIND NO BASIS, UNDER THE ABOVE-CITED STATUTE OR REGULATION, UPON WHICH WE MIGHT CONCLUDE THAT THE ADMINISTRATIVE DETERMINATION TO SET THE AWARD ASIDE FOR SMALL BUSINESS WAS IMPROPER. FURTHERMORE, EVEN IF HINDSIGHT SHOULD NOW INDICATE THAT THE OFFERING OF FAIR AND REASONABLE PRICES WAS NOT INSURED BY THE PARTICIPATION IN THE BIDDING OF ONLY SMALL BUSINESS FIRMS, WE CANNOT OBJECT UNDER THE FACTS OF THIS CASE, BECAUSE THE AWARD WAS SET ASIDE IN REASONABLE EXPECTATION THAT SEVERAL SMALL BUSINESSES CAPABLE OF SUBMITTING REASONABLE BIDS WOULD PARTICIPATE IN THE BIDDING AND THE CONTRACT WAS IN FACT AWARDED AT A REASONABLE BID PRICE.'