BNUMBER:  B-270545
DATE:  March 21, 1996
TITLE:  Hatco Corporation

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Matter of:Hatco Corporation

File:     B-270545

Date:March 21, 1996

Timothy S. Kerr, Esq., Elliott Reihner Siedzikowski & Egan, for the 
protester.
Mariette Naughton for Naughton Energy, the intervenor.
Amalia Evola, Esq., and Benjamin G. Perkins, Esq., Defense Logistics 
Agency, for the agency.
C. Douglas McArthur, Esq., and Christine S. Melody, Esq., Office of 
the General Counsel, GAO, participated in the preparation of the 
decision.

DIGEST

Protest challenging awardee's eligibility for preferential 
consideration as a small disadvantaged business on the ground that the 
supplier proposed by the awardee is not a manufacturer is dismissed 
because the Small Business Administration is vested with conclusive 
authority to decide that issue.

DECISION

Hatco Corporation protests the award of a contract to Naughton Energy 
under request for proposals (RFP) No. SPO451-95-R-2181, issued by the 
Defense Logistics Agency, Defense General Supply Center (DGSC) for the 
manufacture and supply of synthetic lubricating oil.  The protester 
contends that the agency improperly gave Naughton preferential 
consideration for award available under the RFP to small disadvantaged 
business (SDB) concerns.

We dismiss the protest.

On March 21, 1995, DGSC issued the RFP for award of a fixed-price 
requirements contract for a base year, with two 1-year option periods, 
to supply synthetic lubricating oil for use in aircraft turboshaft 
engines.  The RFP provided for a partial small business set-aside, 
with preferential consideration for SDBs.  The RFP required regular 
dealers claiming the preference as SDBs to agree to furnish only items 
manufactured or produced by small business concerns in the United 
States.

After awarding the non-set-aside portion to Mobil Oil Corporation, the 
agency conducted discussions with Naughton.  Naughton agreed to accept 
an award at Mobil's price plus a 10-percent premium allowed for SDBs.  
The agency awarded a contract to Naughton on November 8, and this 
protest followed.  On November 28, Hatco filed a challenge of 
Naughton's status as a disadvantaged firm, which the agency forwarded 
to the Small Business Administration (SBA) for decision.

Naughton's offer indicated that in accordance with the RFP's 
qualification requirements, it was offering a product on the qualified 
products list manufactured by Technolube, a division of Lubricating 
Specialties Company.  Naughton also identified Lubricating 
Specialties' plant in Vernon, California, as the place of performance.

It is Hatco's contention that Lubricating Specialties is not a 
"manufacturer" of the products to be provided under the contract and 
thus that Naughton does not qualify for the SDB preference.[1]  Hatco 
contends that Lubricating Specialties merely mixes an additive 
defoamant obtained from Mobil with ester also provided by Mobil and 
that this effort is too insubstantial to qualify as manufacturing for 
the purpose of obtaining preferential consideration for award.  Hatco 
describes the agreement between Mobil and Lubricating Specialties as a 
"thinly veiled" scheme to take advantage of the SDB program.  Hatco 
argues that Naughton's proposal clearly disclosed its intention to 
purchase the lubricant from Lubricating Specialties; that Naughton 
therefore was not offering a product manufactured by a small business; 
and thus that Naughton was not entitled to preferential consideration 
for award.

With regard to Naughton, SBA has denied Hatco's protest that the 
awardee is not socially and economically disadvantaged.  There is no 
allegation that either Naughton or Lubricating Specialties fails to 
meet the applicable size standard.  Naughton itself is a regular 
dealer and not a manufacturer, and as noted above, is entitled to the 
preference so long as it supplies a product manufactured by another 
small business.  The only issue for resolution is whether Lubricating 
Specialties, a small business, is the manufacturer of the lubricant.  
We conclude that this constitutes a matter that, by statute, 
SBA--which advises that it routinely addresses the issue in precisely 
this context--is exclusively empowered to determine.

Congress has established for the Department of Defense (DOD) a goal of 
5 percent of the contract funds obligated each fiscal year for the 
award of contracts and subcontracts to small business concerns owned 
and controlled by socially and economically disadvantaged individuals.  
10 U.S.C.  sec.  2323 (1994).  The DOD implementation of this legislation 
appears in part 219 of the Defense Federal Acquisition Regulation 
Supplement (DFARS).  The regulation lists evaluation preferences for 
SDBs as one means of meeting this goal.  See DFARS  sec.   219.201, 
252.219-7001.

The statute provides that section 8(d) of the Small Business Act, 15 
U.S.C.  sec.  637(d) (1994), and regulations issued under that section by 
SBA, govern the determination of whether a business is small and 
whether it is owned and controlled by socially and economically 
disadvantaged businesses.  10 U.S.C.  sec.  2323(a)(1)(A).  Similarly, 15 
U.S.C. 636(j)(11)(F)(vii) explicitly vests SBA with authority to 
decide all protests regarding SDB eligibility, including those arising 
under the DOD SDB program.  See  Y.S.K. Constr. Co., Inc. v. U.S., 30 
Fed. Cl. 449, 456 (1994).  Thus, it is clear that Congress 
specifically granted SBA the power and the duty to define the bounds 
of the phrase "small business concerns . . . owned and controlled by 
socially and economically disadvantaged individuals" as used in the 
DOD SDB program.  Id. 

We think this authority encompasses the issue raised by Hatco 
here--whether the proposed small business supplier of a 
nonmanufacturer SDB is a manufacturer of the product to be provided.  
This conclusion is consistent with SBA's general regulatory scheme, 
which treats the identical issue, when raised in the context of a 
firm's eligibility for award under a small business set-aside, as a 
matter to be resolved as part of a size determination.  See 13 C.F.R.  sec.  
121.906(b) (1995).  This issue is routinely reviewed by SBA in that 
context, and our Office will dismiss protests raising the issue 
because SBA's determination is controlling.  See Unholtz-Dickie Corp., 
B-235561, Aug. 30, 1989, 89-2 CPD  para.  194.  Similarly, as stated above, 
SBA routinely addresses protests of size status directed at the exact 
issue Hatco raises:  whether the small business supplier of a 
nonmanufacturer SDB is itself a manufacturer.[2]

In sum, given that the relevant statutes vest authority in SBA to 
decide eligibility for an SDB preference, any issue regarding 
Naughton's eligibility for the preference here based on the 
manufacturer status of Naughton's proposed supplier is for 
determination by SBA, not our Office.

The protest is dismissed.

Comptroller General
of the United States

1. The agency contends that Hatco is not an interested party to 
maintain the protest because Hatco itself would not be supplying the 
product of a small business.  Specifically, the solicitation contained 
a qualification requirement; Hatco appears on the qualified products 
list only as a rebrander--a relabeler, in effect--of a Castrol 
product.  Hatco points out, however, that it is the actual 
manufacturer of the Castrol product and would manufacture the 
lubricant to be provided here.  While the agency does not dispute that 
Hatco manufactures the product for Castrol, it argues that the actual 
identity of the manufacturer is irrelevant because Hatco must offer a 
product on the qualified products list and Castrol is listed as the 
manufacturer there.  We think this argument elevates form over 
substance, however, because it is undisputed that Hatco in fact is 
offering Hatco-manufactured lubricant.

2. SBA, in deciding that issue, applies the same regulation applicable 
to set-aside issues cited above.  It would, in our view, be 
incongruous in any case for our Office to preempt SBA and interpret 
that regulation for a protester that could have but did not bring the 
matter to SBA's attention with the rest of its eligibility concerns.