Free Motion for Summary Judgment - District Court of Federal Claims - federal

Case 1:02-cv-00465-ECH

Document 66-4

Filed 03/31/2006

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Pagc2of5

COMPTBOLLBK *I Subject:

GENEK~ Set-Aside

Defense Fuel Supply Center's Small Business Procurements {B-2~OSS6; Code 3S~917) September 6, 1988 Rinko Kasden

To: Group Direcuor, NSIAD--John Thru: senior Attorney, OGC--A.R. DIGEST

The Defense Fuel Supply Center's (DFSC) small business partial set-aside procedures for ~hg acquisition of its lug! supplies, comply and are consisten~ with the Small Business Act, 15 U,S.C. 631 et.saq., as wall as other applicsble Federal procureman~ laws and regulations. The DFSC procedures have been approved as deviations from applicable procurement regulations for over 20 years, and we previously considered these procedures as a reasonable exercise of DFSC's discretion. See B-16B575{2], ~pril ~8, 1971 and B-171289, April 28, IS71. This r~spmeds to your requemt for our views on the legality of ~he ~e~enae Fuel Supply Center's (DFBC) small businesa se~-eside practices (procedures} for acquisition of its fu~l suppligs. In his letter of January Ii, 1988, to ~equ~sting this review, Senator Max Baucus questien~d whether DFSC's smell business set-aside procedures afford small business a fair opportunity to compete [or these fuel acquisition~. He has asked G~O to determine whether procurement precedure~ are consistent with the Small Business Act, as we!! as other applicable Federal procurement laws and regulations. ~or the reasons given below, we believe that DFSC's small business se~-aside procur~men~ procedures comply and are consistent w~h those laws and regulations. Background The DFBC purchases its bulk fuel supplies fur the Depar~ent Of Defense's (DUD} domestic requirements in a nen-tradi~ional way. It makes ~wo major buys of bulk ~uels with multiple contract awards based en a geographical divisimn of the country: Inland/West and Ease/Gulf. It uses a bid evaluation model developed in the l~60's and 70's which allows it to select the particular cohabitation of contrac~ awards for ~ ~peci~ic buy which will fulfill Khe government's requiremen~ at the over~ll lowest cost (product plus transportation cost). Hnder this med~l, multipl~ awards are needed at many lucations ~o thaK each individual requirement or leca~£on can be completely supplied, Hsual procedures of awarding contracts

DFSC small

solicitations rHquas~ offers from all suppliers, including both large and business firms, foe needs ef all DUB locations in the particular geographic 2006 Thomson/West. No Claim to Orig. U,B. Govt. Works.

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Case 1:02-cv-00465-ECH

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Page3 o_f6

1988 WL 227932

(Comp.Sen.),

B- 230,556

(Cite as: 1988 b~5 227932

a~ea. Using ~he model developed and taking into account quantities reserved for qualified mS.~o~i~y small business finns and sm~ll busines~ set-asides, prices for bulk fuels a~ the various locations in the region are established. DFSC must assure ~haK the small business firms eligible for set-asldes are offered an opportunity to receive contracts at a particular location at prices which are not It use~ one higher ~han the maximttm unit price OFSC would o~herwi~e have to pay. o[ ~hr~e methods--the balanced price, the s~ep price and the matched price--depending on the pattern of bids received to de,ermine the set-asid£ pric~. This prlc~ is ~h~n off,red ~o small business and £h~y hav~ an opportunity accept or reject i~. If i~ is rejected, ~he ~mount s~t-asid~ is ~ff~zed to o~h~r s~ll~rs at ~hat location ~u ~void any r~solici~a~ion. ¯ 2 Sinc~ IS60 D~SC procedures ha~ been approved as a deviation or excep~ion from procuremen~ regulations app!icabl~ to small business partial set-asides. Th~ most recent extension uf ~his exception occurred in MB~ 1987 when the DFSC proc~dure~ were approved as a d~via~!cn from the applicable provisions of Federal Acquisition R~gulation (F~ IH.507, and !9.508(d) ) and of the Def~ns~ Supp!em~n~ to ~h~ ~@-K (DF~ 19.son(d) add 19.50H(7~} ). DFSC b~liev~s tha~ procedures ar~ necessary ~o assure awards to smBll business concerns at pr~c~s ~ha~ are fair and reasonabl~ to ~h~ gover~nt and ~ th~ cuncHrns. DFSC also argues ~ha~ i~s procedure r~sults in smB!l hostess r~c~iving .an equal ~o higher pric~ ~or their fuHl than they w~uld have received if the s~andard small business partial s~t-aside procedures w~re used. Under the F~, the price ~Dr a partial se~-asid~ is "... th~ high~3~ unit pric~(s] in the contract(s} for the non-sea-aside portico .... " F~ 52.21S.7 in his partial January !i i~ter, S~nator Bar,us expressed concern ~haK the 5a~-asid~ procedure may not be consisKen~ with the ~i=i~ c~ the

Small

do no~ ~nga~ in price competition wi~b o~her small businesses. Since ~he "ma~ch pric~" foe ~he fuel i~ laEge!y s~t b~ ~he pric~s s~mitt~d by large ~uel suppliers, small businesses are forced to compute with ~8 cost of produc~ion lau9~ suppliers. He ~herefore contends ~hat DFSC's procedure does no~ offer ~mall businesses the "max~ practical opportunity ~o par~cipate in ~h8 p~rfo~ance of contracts l~t by any F~d~ral agency," referring to the Small Business Ac~, 15 U.S.C. 637. [~I] Question: Does hhe DFSC ~mal! busln~ss ~h~ Small Business A~ and other federal Answer: Yes. Although ~he DESC small partial sea-aside procedur~ comply procurement laws and regulations? business set-asid~ procedure is ~n wi~h

por~iun sf a particular acquisition us lung a~ ~he price do~s nu~ exceed the mazk~ price. The d~viahi~n from FKR and DF~ set aside procedures .is becaus~ ~[ the nature ~f DFSC's ~cquiui~icn uf bulk fu~l supplies. No provision of ~h~ Small B~sinass Ac~ or the FAK or DF~ r~quir~ thu~ small business compe~ csly against each s~her in ~et~ng the price for the small business se~-asid~s. G~O hBs preuicusly ~ou~d substantially s~mila~ D~SC procedures to be aeas~nabl~. SKpla~aKi~n: The small ~ Z0G6 Buslnes5 ~c~, 15 U.S.C. 631 e~. seq., is d~signed Gm~. works.

Th~mssn/W~8~.

So Claim

to Orig.

~.S.

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Page4 of 6

IgeS W5 227932

(Comp.Gen.),

B- 230,556

protect the economic interests uf small business concerns, and "... to insure Chut a fair proportion of the total purchases and contracts or subcontracts for property and services for the government be placed with small business e~terprises ..." 15 U.S.C. 631(a). (Emphasis added.) Identical policy objectives szated in the ArmEd SeEvicE~ ~rocureme~t Act (ASIA), 1O U.S.C. 2~01{b|, and the Federal ~roperty and administrative Services Act IE~ASA), 41 U.S.C. 252(b), which respectively govern military and civilian acquisitiuns. Far~ 19 uf the EBB implements the small business acquisition-related p=ovislons of the Small Business Ao~ and the applicable provisions of the A&PA and FPASA. ~Iso, provisions of the DFAR apply to small business set-aside in DOD acquisitions. *3 To achieve ~he 5mall Business Ac~'s "fair proportion policy", both the Act and ~he F@~ give federal agencies broad authority to award contracts to small business, including on a total or partial set-aside basis. 15 U.S.C. 644{a) and FAR i~.5. An agency may not award a contract to a small business fixm if the agescy'~ co=t would eaceed a fair market p~ice, 15 U.S.C. 644[a}o [EN2] Relatedly, tile EAR se~-aside procedures provide that in both ~otal and par~ia! ~rocuEam~n~ set-asides, ~h~ contracts awarded must b~ made only at reasonable prices. FAR 19.502-2 and 19.50~-3. The F~K also requires that specific clauses bE insErtEd for sEt--us~de contracts, i.e., F~R 52.219-6 (~ota! set-asides) and 52.21g-7 (partial s~t-aside~}. For partial set-~sides, EtL~ 19.502(3)(c) requires ~hat ~he contracting officer must first award the non-set-aside portion using normal contracting procedures. B~th !arg~ firms and businesses eligible for ~he set-a~ide submit offers on the non-se~-aside portion. After the non-set-aside portion is awarded, the contracting officer negotiates with small business firms who have submitted responsive (acceptable) offers en the non-sa~-aside pod!on, The set aside portion will be awarded at the highest unit price(s) in the non-set-aside portion. EA~ 5Z.2!9-7, part (b)(3) of the reqei~ed contract clause. If a set-aside acquisition is not awarded~ the supplies or services for which no ~wnrd was made is recempeted. FAR IB.507(a). The DFSC procedures differ from the FAt procedur~ in two subsuantial respects which are said by DFSC to be required to effectuate bulk fuel acquisitions. First, the award ~ set-aside quaoti~ieS is mudu at pricE~ which w~uld have been paid without the set-aside. This can differ from the "highes~ unit price[s)" paid under the EAR. This variance is the resul~ Ef the nature mE the petroleum refining business. In mos~ businesses, prices will often drop as mere preduc~ i& produced. In the petroleum refinery busimess, the contrary is the case. Since Ehe refining process ~an produce many products, E.g., JEE fuel, gascline, diesel fuel, e~c,, increased quanti~ies of one product are produced at the e~pense eZ others and the price Of additional pruductlon rises. The second difference is that in the event of set-aside failures, ~he set-aslde portion is not recompeted. Under EhE DEZC procedures both large and small fimms are rEquirEd to submit offers on total quantities just as if there was no set-aside. In this way, in the event a set-uside acquisition cannot be filled, other offers can be considered.

2006

Thomson/West.

No Clulm ~o Orig.

U.S. GorE.

Works.

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Case 1:02-cv-00465-ECH

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1988 (Cite

WL 2Z7932 au: 1988

(COmpoGen.|, ~ 227932

B- 230,556

{Comp.Gon.})

Under both the FaR partialset-asld~ regulation and the DFBC deviation large and small business compete agsinst each other. Under the former, the large and small firms submit offers on the non-set-aaide portion whioh is awarded 6irst. The set-aside portion is negotiated wi~h quali~ied small business who have submitted responsive offers under the non-asld8 ~or~ion. Under the DFsC procedure, both large and small fim, s compete by submitting offers on ~otal *4 We have found no court cases or G~O decisionu or opinion~ which have specifically addressed the issue whether the FA-~ part~al set-aside procedures a~e a reasonable implementation o6 the requirmments of the Small Business Act. However, GA~ has considered DF~C procedures subs~antial!y similar to those in effect today a~ a reasonable exercise of an agenoy's d£scre~ion. In S-16~576(2), April ~8, 1971, a small business prc~es~ed the r~duntion of the small busimess sea-aside and proposed certain changes in DHSC'S set-aslde procedures. A~ that ~i~ DFSC's procedures were a deviation frem applicable ~S~A regulatiens. Th~ protester proposed that the formula D~SC uses to calculate the prices paid for the set-aside offeror's would be set on the basis bid after subtracting the of the prices and quantities remaining on each amoun~ awarded on the non-set-asid~ portion.

DFSC pointed out ~hat Khe proposed procedure would not only cos~ ~he government more money, but might ~ctually result in lower pri~as for set-asides as the percentage of the ~ota! procurement which is se~-aslde increases. GAO skated that it would not substitute i~s judgment for that of DFSC "unless it [DFSC] has acted in an arbitrary or capricious manner." We concluded that based on the record, there was "substantial evidence to support DFSC decision no% to revise its small business set-aslde procedures," as suggested by the prntestor. In B-171289 , also decided on April 28~ 1971, GAO concluded that i~ failed to see how evaluation procedures--substantially similar to DFSC present procedures--would be contrary to the "congressional purpose and intent in establishing the small business se~-aside procedure, 15 U.S.C. 631." Im conclusion, we find no reason to question our previous positions that D~SC procedures are in compliance wi~h the Small Business Acr and are a reasonable exercise of agency discretion to implement the policy of the act. Subs~ao~ial!y similar ~FSC procedures have bean approved as deviations from applicable procurement regulations for partial set-asides for over 20 years. Our view ~s reenforced by information DFSC has provided that shows tha~ the DFSC set-aside procedure results ~n small businesses receiving an equal to or a higher price ~or their fuel than under the FAR set-aside procedure. Finally, we note that Senator Baucua letter referenced the Small ~usiness act's requirement that small businesses "... shall have the maximu~ practical e~portunity ~o participate in the performance of conKracts let by any federal agency ..." 15 U.Z.C. 637(a). However, this section is no~ applicable award of a federal contract, but ~o insure tha~ small business receive subcontracts under prime contracts the government has already awarded. Baymend J, Wyrsch © 20~6 ThomsonlW~s~. }In Claim to Orig. U.S. Govt. Works.

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1988 WL 22793Z

{Comp.Gen.),

B- 230,556

Senior

Attorney,

OCG

D~I Senator Baucus' request ste~med from a specific DFSC fuel acquisition in which one small business fi~m, ~he Wolf Poin~ Kefining Company, could not meet the offered "match price" for the delivery of J~-4 fuel to the M£not Air Fo=ce Base~ b~oause ~o do so would have resulted in a $900,000 loss ~o ~he company. Thz attorney r~presen~in 9 the c~mpany believes that DFSC's small husinnss set-aside firms. In view mf ~he Sena~oE's ueques~ for a general assessmeot of DFSC's procedure, and that Wolf Point did not file a bid protes~ concerning the Minor Euel acquisl£ion, we will not address ~his case. ~-N2 Ths Smell Business ~c~ also requires ~ha~ ~he head of mack agency shall establish goals for the participation by small business concerns in ibm award of i~s procuremen~ contracts having a value of $25,000 or mob-e, 15 U.S.C. 644 (g|. FN3 The DFAR also raqui~s i.e., D~% 5Z.21S-7003. i~8 END WL 227932 O~ DOCUMENT (Comp,Gen.)~ that similar clauses be inserted in DaD contracts,

B- 230,5S6

~ ZOO6 T~omsen/|~es~.

No Cluim ~o Orig.

~.S. Gov~, Works.

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Clientservices Case 1:02-cv-00465-ECH

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