BNUMBER: B-271809
DATE: July 29, 1996
TITLE: Harco Laboratories, Inc.
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Matter of:Harco Laboratories, Inc.
File: B-271809
Date:July 29, 1996
Charles A. Patrizia, Esq., and Sarah M. McWilliams, Esq., Paul,
Hastings, Janofsky & Walker, for the protester.
Gwendolyn M. Hoover, Esq., Defense Logistics Agency, for the agency.
Paula A. Williams, Esq., and Michael R. Golden Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest by small business concern that solicitation for military spare
parts requiring contractor to either absorb or price the costs
associated with post-award first article testing violates 10 U.S.C. sec.
2319(d) (1994) is denied where this section requires contracting
agency to assume pre-award (not post-award) qualification testing
costs for small businesses under certain circumstances.
DECISION
Harco Laboratories, Inc. protests certain terms of request for
proposals (RFP) No. SPO750-95-R-0209, issued by the Defense Supply
Center Columbus Region (DSCC), Defense Logistics Agency, for
thermocouple assemblies. Harco contends that the requirement for
first article testing (FAT) places Harco at a competitive disadvantage
because the RFP requires the contractor to absorb or price the costs
of the FAT in contravention of 10 U.S.C. sec. 2319(d) (1994) which was
enacted by Congress to increase competition for military spare parts.
We deny the protest.
As issued on May 30, 1995, the RFP contemplates the award of a firm,
fixed-price delivery contract or contracts for a quantity of spare
thermocouple assemblies. The thermocouple assembly is a component of
the Abrams AGT 1500 gas turbine engine which is used on the M1 Tank;
as such, it must meet stringent design and performance specifications
to assure field effectiveness and troop safety. This item is
classified as a critical engine component and the acquisition is
restricted to an approved source. The only approved source for this
item is Semco Instruments, Inc., although an offer of assemblies from
other manufacturers was permitted subject to source approval.
The amended solicitation, at paragraphs I43 and I43A, requires the
contractor to conduct FAT and to provide the agency with an FAT
report, although the FAT requirement was subject to waiver. The FAT
requirement was set forth as a contract line item; the estimated cost
for the FAT requirement was identified as $166,000. Thus, while the
solicitation provided that the contractor must pay all costs
associated with the FAT, offerors could price the FAT line item as
they chose.
Harco, a small business firm, contends that it must either price the
FAT in its offer or absorb the FAT cost by offering it on a "no
charge" basis, while Semco (which has successfully furnished the item)
can obtain a waiver of the FAT requirement and thus would have a
significant competitive advantage in the competition. Harco asserts
that it should not have to bear the cost or evaluation disadvantage
because section 2319(d)[1] requires the contracting agency to bear the
cost of testing and evaluating the product of a small business concern
where there are less than two qualified sources or products and the
projected savings to the government through increased competition
justify such action. DSCC disagrees with Harco's interpretation of
section 2319(d), maintaining that this provision is applicable only
where the specified testing and evaluation must be completed prior to
award and not to FAT conducted after award. In this regard, the
agency points out that its interpretation of the applicability of
section 2319(d) only to pre-award qualification testing is consistent
with our decision in Nasco Eng'g, Inc., B-224292, Jan. 14, 1987, 87-1
CPD para. 57.
The agency correctly asserts that our decision in Nasco controls the
resolution of this protest. In that case, Nasco, a small business
concern, argued that the Navy was required to pay the cost for FAT
under section 2319(d). We denied the firm's protest on the grounds
that section 2319(d) does not require the contracting agency to assume
the post-award FAT costs for a small business. In that decision, we
stated:
". . . Although the legislation [10 U.S.C. sec. 2319] was enacted
to encourage competition, it appears clear that it was intended
to deal with those situations in which the government has imposed
a preaward qualification requirement and limited competition to
only approved sources or products . . . the 'qualification
requirement' encompassed by section 2319 is defined as '. . . a
requirement for testing or other quality assurance demonstration
that must be completed by an offeror before award of a
contract.'" [Emphasis added.]
We further stated that:
". . . it is in this context that section 2319(d), concerning the
payment of testing costs for small business must be viewed. . .
. [that is] the 'less than two qualified sources or qualified
products available' must be read in conjunction with the type of
qualification requirement covered by section 2319; i.e. a
preaward qualification requirement which prevents a potential
offeror from competing. . . ." [Emphasis added.]
However, in its comments on the agency report, the protester urges us
to reconsider our conclusion in Nasco that section 2319(d) does not
require agencies to pay the cost of FAT for small business
contractors. According to Harco, since section 2319(d) uses the term
"specified testing and evaluation" rather than "qualification
requirement," this subsection can reasonably be interpreted as
encompassing all post-award testing requirements (such as FAT) that
must be met by a contractor as a precondition to contract payment.
Such an interpretation, the protester states, would be consistent with
the Congressional objective to enhance competition for military spare
parts by requiring contracting agencies to pay the costs of all
government imposed testing for small businesses. Finally, Harco
alleges that there is "no evidence that GAO . . . ever undertook any
in-depth statutory construction or review of legislative history" in
issuing the Nasco decision.
Contrary to the protester's arguments, and as Nasco makes clear, there
is nothing in the language of the statute or legislative history which
supports its view that Congress intended to broaden the scope of
section 2319 to require contracting agencies to pay post-award FAT
costs for small business concerns under subsection (d). In Nasco, we
construed section 2319(d) as authorizing contracting agencies to
assume only pre-award testing costs for small businesses under
appropriate circumstances; in doing so, we considered the context in
which the legislation was passed and the primary statutory purpose, as
disclosed in the legislative history. Since Harco advances the same
or similar arguments as those asserted and considered in Nasco, we
have no basis to interpret the statutory provision in the manner urged
by the protester and we decline to reconsider our position based on
these arguments.
Accordingly, the protest is denied.
Comptroller General
of the United States
1. In relevant part, section 2319(d) provides:
"(d)(1) If the number of qualified sources or qualified
products available to compete actively for an anticipated
future requirement is fewer than two actual manufacturers
or the products of two actual manufacturers . . . the head
of the agency concerned shall--
. . . . .
(B) bear the cost of conducting the specified testing
and evaluation . . . for a small business concern or a
product manufactured by a small business concern which
has met the standards specified for qualification and
which could reasonably be expected to compete for a
contract for that requirement, but such costs may be
borne only if the head of the agency determines that
such additional qualified sources or products are
likely to result in cost savings from increased
competition . . . ."