B-153267, JUN. 8, 1964

B-153267, JUN. 8, 1964

TO VARO, INC:

REFERENCE IS MADE TO LETTERS OF FEBRUARY 18 AND 27, 1964, AND APRIL 14, 1964, FROM YOUR ATTORNEYS, PROTESTING THE ELIGIBILITY OF POLAN INDUSTRIES, INC., AS A PERSISTENT LABOR SURPLUS AREA CONCERN UNDER INVITATION FOR BIDS NO. AMC (A) 36-038-64-206 (M) ISSUED BY THE FRANKFORD ARSENAL, PHILADELPHIA, PENNSYLVANIA, ON OCTOBER 4, 1963.

THE INVITATION SOLICITED BIDS--- TO BE OPENED ON NOVEMBER 4, 1963--- FOR FURNISHING 1,367 BINOCULARS, F.O.B. CONTRACTOR'S PLANT. THE INVITATION ALSO PROVIDED THAT THE PROCUREMENT OF 1,366 BINOCULARS HAD BEEN SET ASIDE FOR AWARD ONLY TO ONE OR MORE LABOR SURPLUS AREA CONCERNS AND, TO A LIMITED EXTENT, TO SMALL BUSINESS CONCERNS WHICH DID NOT QUALIFY AS SURPLUS LABOR AREA CONCERNS. ALSO, THE INVITATION PROVIDED THAT NEGOTIATIONS FOR AWARD OF THE SET-ASIDE PORTION WOULD BE CONDUCTED ONLY WITH RESPONSIBLE LABOR SURPLUS AREA CONCERNS (AND SMALL BUSINESS TO THE EXTENT INDICATED) WHICH HAD SUBMITTED RESPONSIVE BIDS OR PROPOSALS ON THE NON-SET-ASIDE PORTION AT A UNIT PRICE NO GREATER THAN 120 PERCENT OF THE HIGHEST AWARD MADE ON THE NON-SET-ASIDE PORTION, FOLLOWING A CERTAIN ORDER OF PRIORITY. GROUP 1 WAS DESIGNATED AS THE PERSISTENT LABOR SURPLUS AREA CONCERNS WHICH WERE ALSO SMALL BUSINESS CONCERNS. FOUR OTHER GROUPS OF LESSER PRIORITY WERE SET OUT IN THE INVITATION BUT THIS IS OF NO RELEVANCE HERE. ALSO, THE INVITATION SET OUT VARIOUS DEFINITIONS CONCERNING LABOR SURPLUS AREA CONCERNS AND PARAGRAPHS (B) (1) (I) AND (D) ON PAGE 2 OF THE INVITATION PROVIDED THAT---

"/I) "PERSISTENT LABOR SURPLUS AREA" MEANS AN AREA WHICH (A) IS CLASSIFIED BY THE DEPARTMENT OF LABOR AS AN "AREA OF SUBSTANTIAL AND PERSISTENT LABOR SURPLUS" (ALSO CALLED "AREA OF SUBSTANTIAL AND PERSISTENT UNEMPLOYMENT") AND IS LISTED AS SUCH BY THAT DEPARTMENT IN CONJUNCTION WITH ITS PUBLICATION "AREA LABOR MARKET TRENDS," OR (B) IS CERTIFIED AS AN AREA OF SUBSTANTIAL AND PERSISTENT LABOR SURPLUS BY DEPARTMENT OF LABOR PURSUANT TO A REQUEST BY A PROSPECTIVE CONTRACTOR.

"/D) AGREEMENT. THE BIDDER AGREES THAT, IF AWARDED A CONTRACT AS A PERSISTENT LABOR SURPLUS AREA CONCERN UNDER THE SET-ASIDE PORTION OF THIS PROCUREMENT, HE WILL PERFORM, OR CAUSE TO BE PERFORMED, A SUBSTANTIAL PROPORTION OF THE PRODUCTION IN AREAS CLASSIFIED AT THE TIME OF AWARD, OR AT THE TIME OF PERFORMANCE OF THE CONTRACT, AS PERSISTENT LABOR SURPLUS AREAS; AND THAT IF AWARDED A CONTRACT AS A SUBSTANTIAL LABOR SURPLUS AREA CONCERN UNDER THE SET-ASIDE PORTION OF THIS PROCUREMENT, HE WILL PERFORM, OR CAUSE TO BE PERFORMED, A SUBSTANTIAL PROPORTION OF THE PRODUCTION IN AREAS CLASSIFIED AT THE TIME OF AWARD, OR AT THE TIME OF PERFORMANCE OF THE CONTRACT, AS SUBSTANTIAL OR PERSISTENT LABOR SURPLUS AREAS.'

AWARD OF THE NON-SET-ASIDE PORTION OF THE PROCUREMENT WAS MADE TO YOUR FIRM ON DECEMBER 31, 1963, AT THE UNIT PRICE OF $564. AS TO THE PRIORITY FOR NEGOTIATION OF A CONTRACT FOR THE SET-ASIDE PORTION OF THE PROCUREMENT, THE GROUP OF BIDDERS ENTITLED TO FIRST PRIORITY IS THAT GROUP CLASSIFIED AS SMALL BUSINESS CONCERNS AND WHICH ARE PERSISTENT LABOR SURPLUS AREA CONCERNS. ON THE BASIS OF INFORMATION FURNISHED BY BIDDERS WITH THE SUBMISSION OF THEIR BIDS, POLAN INDUSTRIES, INC., AND YOUR FIRM FELL IN THAT CATEGORY. HOWEVER, WE HAVE BEEN ADVISED BY THE SMALL BUSINESS ADMINISTRATION THAT YOUR FIRM IS CLASSIFIED AS LARGE BUSINESS FOR THE PURPOSE OF THIS PROCUREMENT AND THEREFORE WOULD BE ENTITLED TO PRIORITY ONLY UNDER THE SECOND GROUP. THE QUESTION PRESENTED IS WHETHER POLAN IS ENTITLED TO PRIORITY IN NEGOTIATION AS A GROUP 1 CONCERN, THAT IS, AS A SMALL BUSINESS CONCERN WITH COSTS OF PERFORMANCE IN PERSISTENT LABOR SURPLUS AREAS AMOUNTING TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE.

THE INVITATION CONTAINED A REQUIREMENT THAT IF A BIDDER DESIRED TO BE CONSIDERED FOR AWARD AS A LABOR SURPLUS AREA CONCERN, IT MUST MAKE AN AFFIRMATIVE REPRESENTATION THAT IT IS A LABOR SURPLUS AREA CONCERN AND IDENTIFY IN ITS BID, PRIOR TO THE TIME OF OPENING, THE GEOGRAPHICAL AREAS IN WHICH IT PROPOSES TO PERFORM OR CAUSE TO BE PERFORMED A SUBSTANTIAL PROPORTION OF THE PRODUCTION OF THE CONTRACT. IN YOUR BID YOU CERTIFIED THAT MORE THAN 50 PERCENT OF THE CONTRACT PRICE WOULD BE MANUFACTURING COSTS (BY YOUR FIRM OR YOUR SUBCONTRACTORS) IN AN AREA CLASSIFIED BY THE DEPARTMENT OF LABOR AS A PERSISTENT AND SUBSTANTIAL SURPLUS LABOR AREA AND YOU INDICATED IN THE BLANK PROVIDED FOR THE GEOGRAPHICAL AREA FOUR AREAS, NAMELY, PITTSBURGH, PENNSYLVANIA; MEXIA, TEXAS; LACROSSE, WISCONSIN; AND HUNTINGTON ASHLAND, WEST VIRGINIA. POLAN'S CERTIFICATION AS TO A PERSISTENT AND SUBSTANTIAL LABOR SURPLUS AREA CONCERN SHOWED THE GEOGRAPHICAL AREA AS HUNTINGTON, WEST VIRGINIA.

THE PROTEST INVOLVES TWO DISTINCT ASPECTS OF THE PROCUREMENT ON A SET- ASIDE BASIS. THE FIRST QUESTION RAISED IS WHETHER POLAN WILL BE PERFORMING WORK, OR INCURRING COSTS, TO THE EXTENT OF MORE THAN 50 PERCENT OF THE CONTRACT PRICE IN A PERSISTENT LABOR SURPLUS AREA. WHEN THE ATTORNEY FOR POLAN PRESENTED ITS COST BREAKDOWN TO THE CONTRACTING OFFICER IN HIS LETTER OF JANUARY 7, 1964, HE STATED THAT THE COSTS TO BE INCURRED IN HUNTINGTON, WEST VIRGINIA, WOULD BE $240.55 AND THE COSTS IN OTHER SURPLUS LABOR AREAS WOULD BE $44.36 OR A TOTAL OF $284.91. IN A SUBSEQUENT WIRE OF JANUARY 29, 1964, TO THE CONTRACTING OFFICER, THE ATTORNEY FOR POLAN STATED THE COMPANY WOULD INCUR COSTS OF $240.55 IN HUNTINGTON AND THAT IT WOULD INCUR ADDITIONAL COSTS OF $42.01 IN HUNTINGTON OR ANOTHER PERSISTENT LABOR SURPLUS AREA, A TOTAL OF $282.56. THE UNIT PRICE IN THE CONTRACT AWARDED TO YOU ON A COMPETITIVE BASIS IS $564. IT IS CONTENDED ON YOUR BEHALF THAT, SINCE POLAN HAS SUGGESTED THAT IT MIGHT INCUR A SMALL PORTION OF THE COST OF THE WORK IN AN AREA OF SIMILAR CATEGORY BUT OTHER THAN HUNTINGTON, WEST VIRGINIA, POLAN THEREFORE IS CHANGING THE SITE OF PERFORMANCE OR OFFERING A DIFFERENT SITE AFTER BID OPENING, CITING IN SUPPORT B 151247, JUNE 28, 1963. THE FACTS IN THE CASE CITED ARE DIFFERENT FROM THOSE HERE INVOLVED. IN B-151247, THE PROTESTING BIDDER ALLEGED THAT IT MADE A MISTAKE IN ITS BID IN SHOWING THAT IT WOULD PERFORM IN A SUBSTANTIAL LABOR SURPLUS AREA OR AS A PRIORITY GROUP 3 CONCERN, WHEREAS IT SHOULD HAVE INDICATED THAT IT WOULD PERFORM IN A PERSISTENT LABOR SURPLUS AREA AND QUALIFY AS A PRIORITY GROUP 1 CONCERN. OUR OFFICE HELD THAT SUCH A CHANGE COULD NOT BE PERMITTED SINCE IT DISCRIMINATED AGAINST THE OTHER BIDDER. WE HAVE RECOGNIZED THAT IT MAY NOT ALWAYS BE POSSIBLE FOR A BIDDER TO FURNISH EVIDENCE WITH ITS BID, OR EVEN PRIOR TO AWARD, THAT IT HAD FIRM COMMITMENTS FROM SUPPLIERS IN PERSISTENT LABOR SURPLUS AREAS TO QUALIFY FOR AWARD ON THIS BASIS. SEE B- 151804, DECEMBER 11, 1963. THE PRICE WHICH THE BIDDER HAS TO MEET IN ORDER TO BE ENTITLED TO AWARD OF THE CONTRACT ON THE PORTION OF THE PROCUREMENT ON THE COMPETITIVE BASIS AND THEREFORE IT DOES NOT KNOW EXACTLY THE AMOUNT OF THE PERFORMANCE COSTS IT WILL BE OBLIGED TO SHOW BEFORE IT IS ELIGIBLE FOR AWARD. IN ANY EVENT UNDER THE ABOVE-QUOTED PROVISIONS OF PARAGRAPH (D) IT APPEARS THE SUCCESSFUL BIDDER AGREES ONLY THAT, IF IT IS AWARDED A CONTRACT AS A PERSISTENT LABOR SURPLUS AREA CONCERN, IT WILL PERFORM, OR CAUSE TO BE PERFORMED, A SUBSTANTIAL PROPORTION OF THE PRODUCTION IN AREAS CLASSIFIED AT TIME OF AWARD, OR AT TIME OF PERFORMANCE OF THE CONTRACT, AS PERSISTENT LABOR SURPLUS AREAS. THE PURPOSE FOR WHICH THE AWARD HAS BEEN LIMITED TO SURPLUS LABOR AREA CONCERNS WILL BE FULLY MET AS LONG AS THE CONTRACTOR ABIDES BY ITS AGREEMENT AND PERFORMS IN AN AREA FALLING IN THE SAME CATEGORY OF LABOR SURPLUS AS SHOWN IN ITS BID. TO THE EXTENT B-151247, JUNE 28, 1963, TO WHICH YOU REFER, MIGHT BE CONSTRUED AS PRECLUDING CHANGES FOR VALID REASONS BY BIDDERS IN SPECIFIED AREAS OF PERFORMANCE SO LONG AS THE AREAS COINCIDE IN CATEGORY WITH THOSE ORIGINALLY DESIGNATED IT WILL NO LONGER BE FOLLOWED.

THE SECOND QUESTION POSED IS WHETHER POLAN IS A "RESPONSIBLE" CONTRACTOR SINCE, AS STATED IN THE LETTER OF FEBRUARY 27 THAT:

"* * * IT IS OUR BELIEF THAT POLAN CURRENTLY HAS AT LEAST TWO CONTRACTS UNDER WHICH IT IS NOT COMPLYING WITH ITS CONTRACTUAL COMMITMENTS TO INCUR COSTS IN SUBSTANTIAL AND PERSISTENT LABOR SURPLUS AREAS.'

THE DATA ON WHICH THIS BELIEF IS BASED IS SET OUT IN THIS LETTER. THE MATTER WAS REFERRED TO THE ADMINISTRATIVE OFFICE FOR REPORT. THE FIRST CONTRACT, NO. DA-36-038-AMC-0653A, WAS EXAMINED ON THIS MATTER BY THE ADMINISTRATIVE OFFICE, UPON AN INQUIRY BY A THIRD PARTY, AND IT WAS ESTIMATED THAT POLAN WOULD INCUR COSTS OF $918,894 IN LABOR SURPLUS AREAS, OR APPROXIMATELY 60 PERCENT OF THE CONTRACT PRICE OF $1,535,461. HOWEVER, UPON FURTHER INQUIRY, IT HAS BEEN REPORTED THAT FULL SCALE OPERATIONS HAD NOT BEEN BEGUN AND THEREFORE IT COULD NOT BE DETERMINED WHETHER THE CONTRACTOR WOULD FULFILL ITS OBLIGATION.

AS TO THE SECOND CONTRACT AWARDED IN MAY 1963, THE ADMINISTRATIVE OFFICE REPORTS THAT THIS CONTRACT COULD HAVE BEEN AWARDED TO POLAN UNDER EITHER GROUP 1 OR 5 OF THE PRIORITY CLASSIFICATION SINCE THERE WERE "NO OTHER BIDDERS INVOLVED IN ANY OTHER CATEGORY.' UNDER PRIORITY GROUP 5--- SMALL BUSINESS CONCERNS WHICH ARE NOT LABOR SURPLUS AREA CONCERNS--- AND UNDER THE CONTRACT PROVISIONS "NOTICE OF LABOR SURPLUS AREA SET-ASIDE" SET OUT IN PARAGRAPH 1-804.2 OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), PARAGRAPH (B) (3) STATES THAT A SMALL BUSINESS CONCERN ONLY AGREES TO FURNISH THE END ITEM MANUFACTURED OR PRODUCED IN THE UNITED STATES BY SMALL BUSINESS CONCERNS. THIS DIFFERS FROM A CASE WHERE THE AWARD IS MADE AS A LABOR SURPLUS AREA CONCERN (GROUP 1) IN WHICH LATTER CASE THE CONTRACTOR IS REQUIRED TO INCUR COSTS ON ACCOUNT OF MANUFACTURING OR PRODUCTION AMOUNTING TO MORE THAN 50 PERCENT OF THE CONTRACT PRICE, IN THE TYPE OF LABOR SURPLUS AREA DESIGNATED BY IT AND BY REASON OF WHICH IT ACCORDED PRIORITY IN AWARD OF THE CONTRACT. THE ADMINISTRATIVE OFFICE REPORTS THAT "THERE IS NO EVIDENCE THAT POLAN IS NOT PERFORMING IN ACCORDANCE WITH ITS COMMITMENTS.'

ALSO, IN THE CASE HERE UNDER CONSIDERATION, THE EVIDENCE FURNISHED DOES NOT ESTABLISH, AND THE CONTRACTING OFFICER HAS NOT AS YET MADE A DETERMINATION, THAT POLAN WILL PERFORM MORE THAN 50 PERCENT OF THE WORK IN HUNTINGTON, WEST VIRGINIA, OR IN A PERSISTENT LABOR SURPLUS AREA, SO AS TO ENTITLE IT TO AWARD AS A GROUP 1 CONCERN. SUCH A DETERMINATION MUST BE GUIDED BY THE PROVISIONS OF ASPR 1-801.1 (II) AND WE AGREE WITH THE CONTENTION IN THE LETTER OF APRIL 14 THAT IN VIEW OF ,EXAMPLE B"UNDER SUCH REGULATION THE COST OF MATERIALS IS NOT NECESSARILY A COST OF PRODUCTION OF THE PRIME CONTRACTOR IN A LABOR SURPLUS AREA.

IN VIEW OF THE FOREGOING YOUR PROTEST IS DENIED.

IN CONCLUSION IT MAY BE STATED THAT THE QUESTION OF WHETHER GOVERNMENT CONTRACTORS RECEIVING AWARDS ON THE BASIS OF SURPLUS LABOR AREA PRIORITIES ARE OR HAVE BEEN MEETING THEIR OBLIGATION TO PERFORM A SUBSTANTIAL PORTION OF THE CONTRACT WORK IN SUCH AREAS IS A MATTER OF CONCERN TO OUR OFFICE AND IS CURRENTLY RECEIVING CONSIDERATION UNDER CERTAIN OF OUR AUDIT PROGRAMS.