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 . . . ."