[Federal Register Volume 61, Number 162 (Tuesday, August 20, 1996)]
[Notices]
[Pages 43037-43040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21218]


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COMMITTEE FOR PURCHASE FROM PEOPLE WHO ARE BLIND OR SEVERELY DISABLED


Procurement List; Addition

AGENCY: Committee for Purchase From People Who Are Blind or Severely 
Disabled.

ACTION: Addition to the procurement list.

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SUMMARY: This action adds to the Procurement List a commodity to be 
furnished by nonprofit agencies employing persons who are blind or have 
other severe disabilities.

EFFECTIVE DATE: September 19, 1996.

ADDRESSES: Committee for Purchase From People Who Are Blind or Severely 
Disabled, Crystal Square 3, Suite 403, 1735 Jefferson Davis Highway, 
Arlington, Virginia 22202-3461.

FOR FURTHER INFORMATION CONTACT: Beverly Milkman (703) 603-7740.

SUPPLEMENTARY INFORMATION: On May 24, 1996, the Committee for Purchase 
From People Who Are Blind or Severely Disabled published notice (61 FR 
26167) of proposed addition to the Procurement List.
    Comments were received from the current contractor for these flags 
and from two Members of Congress. The contractor claimed that addition 
to the Procurement List of another 20 percent

[[Page 43038]]

of the Department of Veterans Affairs (VA) requirement for interment 
flags would have a severe adverse impact on the company, and submitted 
the report of a financial expert to support that conclusion. The 
contractor also claimed that the Committee's method of assessing impact 
is insupportable because it ignores many factors which the contractor 
claims should be considered.
    The contractor stated that it has suffered significant losses since 
the Committee added a portion of the VA requirement for interment flags 
to the Procurement List in 1993. The contractor claimed that it had 
been adversely impacted by previous Committee actions involving code 
signal flags, and that the new addition of interment flags would 
severely impact the company's employees because a significant number 
would immediately lose their jobs as a result of the Committee's 
actions and all would eventually be unemployed if the company failed. 
Using documents obtained through the Freedom of Information Act (FOIA), 
the contractor claimed that the Committee had abrogated its 
responsibility to make the contractor impact determination by allowing 
the central nonprofit agency (NISH) to participate substantially in the 
determination.
    The contractor claimed that the nonprofit agencies do not meet the 
Committee's regulatory requirements as they are not performing the 
required percentage of the labor necessary to make the flags. The 
contractor also claimed that even if the Committee's ``ludicrous'' 
interpretation of the direct labor requirement is correct, the 
nonprofit agencies are not meeting the requirement. The contractor also 
claimed that the nonprofit agencies' requests for specification waivers 
prove that the nonprofit agencies are incapable of making the flags.
    The contractor further claimed that the relationship of one of the 
nonprofit agencies with a for-profit flag manufacturer shows that the 
previous addition of a part of the VA requirement was little more than 
a diversion of that part from the contractor to one of its competitors. 
The contractor submitted documents obtained under FOIA which it claimed 
substantiated its case.
    In conclusion, the contractor claimed that the Committee's 1993 
decision to add 20 percent of the VA requirement for the interment flag 
to the Procurement List was based upon improper input from a central 
nonprofit agency with a financial interest in the proceeding. The 
contractor also claimed that Committee members have been unfairly 
maligning the company by stating that VA is unsatisfied with the 
quality of the interment flags the contractor has provided.
    The contractor was permitted to address the Committee at a meeting 
held soon after the close of the comment period for the addition 
proposal to elaborate on issues raised in the comments the contractor 
had submitted. In a followup letter after this presentation, the 
contractor raised two additional issues. The contractor claimed that if 
the additional interment flag requirement is added to the Procurement 
List, the total impact of the Committee's Javits-Wagner-O'Day (JWOD) 
Program on the contractor would represent five percent of the total 
portion of JWOD Program sales of commodities by nonprofit agencies 
represented by NISH. The contractor also indicated that the impact of 
the previous interment flag addition on the contractor had not yet 
occurred, but soon would as VA purchases declined, and the impact would 
be magnified by the 1996 addition.
    The two Members of Congress, writing jointly, expressed concern 
over possible loss of jobs by the contractor's employees and the 
effects of this loss on the region where the contractor's plant is 
located. They also asked the Committee to consider alternatives to 
adding the additional interment flag requirement to the Procurement 
List.
    The Committee retained its own financial expert to review the 
contractor's expert's report and assist the Committee in analyzing the 
impact claims made by the contractor. Our expert's report refutes the 
contentions of the contractor and its expert that the addition of an 
additional 20 percent of the VA requirement for interment flags to the 
Procurement List will have a severe adverse impact on the contractor. 
Our expert concluded that the contractor appears to have sufficient 
cash, capital and management expertise to withstand a decrease in 
annual sales in the range which the total impact of the Committee's 
actions would cause without a resulting severe adverse impact. The 
percentage decline in the contractor's sales which our expert predicted 
is well below the level which the Committee normally considers to be 
severe adverse impact, and below the level which a court decision found 
not to be severe adverse impact.
    The contractor's gross profits, in fact, have increased 
substantially since 1989. The one year in which the contractor's 
financial statements show a loss, 1993, was a year in which the 
nonprofit agencies produced almost no flags, as they received their 
first contract late in the year and their production was delayed by 
startup difficulties. The loss occurred because of a reduction in the 
contractor's bid price for the flag contract, a failure by the 
contractor to decrease its allocation for fixed costs in proportion to 
its declining sales volume, and because the family who owned the 
business took a large amount out of it for executive salaries and other 
expenses. In this regard, it should be noted that even the contractor's 
financial expert recommended that the company reduce its executive 
salaries.
    The contractor has attempted to explain the fact that its sales 
have not declined despite the Committee's 1993 action in adding 20 
percent of the VA interment flag requirement by stating that the VA's 
flag requirements will soon decline precipitously, as VA uses up the 
high number of flags it has bought in recent years. Information 
provided to the Committee by VA, however, demonstrates that VA flag 
requirements will not decline, but will increase through at least 2005 
to meet the expected veteran mortality during that period. Accordingly, 
any impact which the addition of a second 20 percent of the VA 
interment flag requirement to the Procurement List might have will be 
somewhat mitigated by the rising interment flag market.
    The contractor's expert contended that the contractor's financial 
position after the 1993 addition had become marginal, and that the 
second addition would so threaten the viability of the company that its 
auditors would likely issue a ``going concern'' opinion to warn of the 
likely failure of the company. Our expert's review of the contractor's 
financial statements indicated, however, that such an opinion could not 
be issued because the contractor's cash and accounts receivable were in 
such good condition that the projected sales loss was not critical, and 
the likelihood of the contractor going out of business was very small. 
Consequently, the possibility of extensive layoffs by the contractor, 
affecting both the employees involved and the economy of the region, is 
unlikely.
    Our expert also rejected the contractor's contention that the 
Committee's method of assessing contractor impact is simplistic. 
Because of its contention that a proper assessment of impact required 
the Committee to examine ten specific factors enumerated in the 
contractor's comments, the Committee permitted the contractor to submit 
additional information on these factors as they related to the 
contractor's financial position, and this information was reviewed. 
However, as our expert noted,

[[Page 43039]]

many of the problems the contractor has experienced were due to 
management decisions, which no method of impact analysis could 
anticipate. Consequently, the Committee, and its expert, believe that 
the Committee's current method of assessing impact, which focuses on 
percentage of contractor sales represented by a proposed Procurement 
List addition and recent previous additions, as well as review of other 
information submitted by the contractor, is an appropriate one which 
the Committee should continue to use.
    The code signal flags which the contractor claimed were impacting 
its sales have been on the Procurement List, in some cases, since 1973. 
The contractor brought this supposed continuing impact to the 
Committee's attention late last year. The Committee investigated and 
determined that the nonprofit agency was experiencing difficulties in 
supplying the Government, which had caused the Government to procure 
its requirements for these flags from commercial sources, including the 
commenting contractor. Because of this situation, the code signal flags 
were removed from the Procurement List in June 1996. Accordingly, the 
Committee does not consider the code signal flags to have any impact on 
the contractor at this time or in the future.
    The Committee also examined the contractor's contention that it has 
suffered or will suffer the impact of losing commodities equal to five 
percent of NISH's commodities sales under the JWOD Program. NISH's 
nonprofit agencies, however, produce a fairly small portion of the 
commodities in the JWOD Program, as these nonprofit agencies mainly 
furnish services to the Government. The percentage of overall JWOD 
Program commodity sales which items lost by the contractor represent is 
less than 2 percent. The Committee does not believe this is a 
disproportionate amount for a company to experience, particularly one 
that is as dominant in its industry as the contractor.
    For all these reasons, including those set forth in more detail in 
our expert's report, the Committee has concluded that addition of a 
second 20 percent of the VA requirement for interment flags to the 
Procurement List is not likely to have a severe adverse impact on the 
contractor. In reaching this conclusion, the Committee has also taken 
into account the contractor's long history as a supplier of interment 
flags to the VA and its resulting dependency on contracts for the flag.
    The contractor's contention that the Committee abrogated its 
responsibility for making the contractor impact determination on this 
addition to the Procurement List is based on documents in which NISH 
expressed its opinion on the impact. The determination, however, is 
made by the Committee as part of the decision to add the interment flag 
requirement to the Procurement List, and no special weight is given to 
opinions contained in information supplied by NISH or any other party 
who is required or permitted to submit information to the Committee in 
connection with a Procurement List addition. Because the structure of 
the JWOD Program requires the Committee to rely on NISH and NIB to 
submit much of the information used in making Procurement List addition 
decisions, the Committee has established procedures to specify and 
control what information they must submit before the Committee can 
begin the rulemaking process which leads to a Procurement List 
addition. The Committee is aware of the financial interest which NISH 
has in the outcome of the Committee's decision, but does not believe 
that interest prejudices the information NISH submits or influences the 
Committee's addition decisions.
    The contractor's claim that the nonprofit agencies do not meet the 
statutory direct labor requirement is based on an argument that the 
JWOD Act requires nonprofit agencies to use people with severe 
disabilities to perform 75 percent of the direct labor involved in all 
aspects of producing the flag. The statutory requirement, however, is 
that 75 percent of all direct labor performed by employees of nonprofit 
agencies participating in the JWOD Program, including direct labor on 
commodities and services outside the JWOD Program, must be performed by 
people with severe disabilities. 41 U.S.C. Sec. 48b(4)(C). There is no 
requirement that 75 percent of the total production process be 
performed by people with severe disabilities. The Committee's 
interpretation of the statutory requirement, far from being 
``ludicrous,'' has been confirmed by a court decision known to the 
contractor. At the present time, all three nonprofit agencies are in 
compliance with this requirement.
    The nonprofit agencies experienced some difficulties in gearing up 
for full production of the flags in 1993. During that period, and in 
response to VA requests for suggestions to improve manufacturing 
efficiency and reduce costs, the nonprofit agencies submitted three 
requests for waiver of specification requirements, two of which were 
granted. After production began on the JWOD share of the 1993 VA flag 
requirement, two more requests were made, both of which were granted by 
VA. No waiver requests have been made in connection with the current 
JWOD share of the VA flag requirement. During this initial period, the 
failure of a fabric supplier to provide conforming material in a timely 
manner caused the nonprofit agencies to miss some delivery deadlines. 
Since the startup period, the nonprofit agencies have experienced no 
significant quality or delivery problems in producing the flags. 
Accordingly, the Committee does not believe that the events just 
described affect the current capability of the nonprofit agencies to 
produce the portion of the VA interment flag requirement being added to 
the Procurement List.
    One of the nonprofit agencies has long had a relationship with the 
commercial flag manufacturer identified by the contractor as a 
competitor, and the three nonprofit agencies did contract with that 
manufacturer for technical support, procurement of star fields, and 
production of stripe subassemblies during the startup phase of JWOD 
flag production. At that time, the contractor was given an opportunity 
to submit a bid for the star fields and stripe subassemblies, but 
declined to do so. The technical support contract ended in 1994, and 
since September 1994 only one nonprofit agency has continued buying 
stripe subassemblies from the commercial manufacturer. In the future, 
the nonprofit agency will produce the subassemblies in house. These 
stripe subassemblies represent only ten percent of the cost of a 
finished flag. Subcontracting at this level is within Committee 
guidelines. The Committee does not believe that this relationship has 
constituted an improper diversion of the JWOD share of the VA flag 
requirement to a commercial producer, nor does it agree that the 
relationship is a reason the additional flag requirement should not be 
added to the Procurement List.
    To the Committee's knowledge, no Committee member during the 
current rulemaking procedure has maligned the contractor's ability to 
produce flags acceptable to VA. The rulemaking record for the 1993 
addition and subsequent reconsideration does contain a July 1993 letter 
from VA to a Senator noting deficiencies in interment flags produced by 
the contractor. On the other hand, the contractor has furnished the 
Committee statements from VA employees indicating satisfaction with the 
contractor's product. VA has told the Committee only that it will 
continue to seek other sources for the flags. In any case, the quality 
of a competing commercial contractor's product is not a factor which 
the Committee considers in making a decision that a Government

[[Page 43040]]

supply requirement is suitable for production by nonprofit agencies 
employing people who are blind or have other severe disabilities.
    The concern expressed by the two Members of Congress for the 
economic impact on a region of their State is based on taking at face 
value the contractor's claim that the Committee's action will cause the 
contractor to lay off a sizeable number of its employees. As discussed 
above, the Committee does not believe this will occur, or if it does, 
it will occur because of management decisions made by the contractor 
and not because of the Committee's actions. The alternatives the 
Congressmen suggested are the proposals the contractor made in 1993 and 
1996 to provide work for people with severe disabilities if the 
Committee would decline to add the proposed VA flag requirements to the 
Procurement List. The Committee devoted considerable time and analysis 
to each of these proposals, and rejected them only because they had 
insurmountable flaws. In 1993, the contractor's proposal would have 
required a specification change which VA had stated it would not 
accept. In 1996, the proposal originally guaranteed to the nonprofit 
agencies a multiple of the number of jobs the 1993 addition was 
projected to create. The 1993 addition actually created nearly three 
times the number of jobs projected for people with severe disabilities. 
The Committee considered it improbable that the contractor could afford 
to guarantee subcontracting opportunities that would create three times 
this larger number of jobs for people with severe disabilities. This 
opinion reflected the Committee's knowledge that VA was seeking other 
contractors for the flags and that the contractor would have no 
guarantee of recapturing all of the interment flag business when it was 
procured on a competitive basis. In addition, accepting the 1996 
proposal would have forced the nonprofit agencies to sacrifice work 
they had successfully geared up to do, and which had proven to create 
many jobs, in return for erratic and unspecified work as subcontractors 
to the commenting contractor.
    After consideration of the material presented to it concerning 
capability of qualified nonprofit agencies to provide the commodity and 
impact of the addition on the current or most recent contractors, the 
Committee has determined that the commodity listed below is suitable 
for procurement by the Federal Government under 41 U.S.C. 46-48c and 41 
CFR 51-2.4. I certify that the following action will not have a 
significant impact on a substantial number of small entities. The major 
factors considered for this certification were:
    1. The action will not result in any additional reporting, 
recordkeeping or other compliance requirements for small entities other 
than the small organizations that will furnish the commodity to the 
Government.
    2. The action will not have a severe economic impact on current 
contractors for the commodity.
    3. The action will result in authorizing small entities to furnish 
the commodity to the Government.
    4. There are no known regulatory alternatives which would 
accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 46-
48c) in connection with the commodity proposed for addition to the 
Procurement List.
    Accordingly, the following commodity is hereby added to the 
Procurement List:

Flag, National, Interment
    8345-00-656-1432

(Additional 20% of the Government's requirement)

    This action does not affect current contracts awarded prior to the 
effective date of this addition or options that may be exercised under 
those contracts.
Beverly L. Milkman,
Executive Director.
[FR Doc. 96-21218 Filed 8-19-96; 8:45 am]
BILLING CODE 6353-01-P