BNUMBER:  B-274849; B-275140
DATE:  January 7, 1997
TITLE:  REFA International, Inc.

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Matter of:REFA International, Inc.

File:     B-274849; B-275140

Date:January 7, 1997

Joe Hardin for the protester.
John P. Patkus, Esq., Defense Logistics Agency, for the agency.
Marie Penny Ahearn, Esq., David A. Ashen, Esq., and John M. Melody, 
Esq., Office of the General Counsel, GAO, participated in the 
preparation of the decision.

DIGEST
 
Protest that agency unreasonably delayed review of protester's 
application for qualified suppliers list (QSL) is denied where delay 
was related to agency's  concerns (1) that there may be an identity 
between the protester and a contractor that had been debarred on the 
basis of lack of business integrity, and (2) whether the protester's 
products were traceable to a QSL manufacturer or supplier.

DECISION

REFA International, Inc. (REFA) protests the award of two purchase 
orders for class 3 threaded fasteners--to L & M Enterprises, Inc. 
under request for quotations (RFQ) No. SP0500-96-Q-KZ52, and to ASC 
Industries under RFQ No. SP0500-96-T-HJ08--issued by the Defense 
Industrial Supply Center (DISC), Defense Logistics Agency.  REFA 
argues that DISC improperly denied the firm an opportunity to compete 
under the RFQs by failing promptly to consider the firm's request for 
approval as a qualified source for the screws.

We deny the protests.

DISC issued the RFQs on June 17 and August 30, 1996, respectively.  
Both RFQs provided that only manufacturers/suppliers on the qualified 
suppliers list (QSL) for class 3 threaded fasteners (which are used 
primarily for aerospace applications) would be eligible for award.  
DLA rejected REFA's low quotes on both RFQs because the firm was not 
on the QSL at the time of the awards.  The agency made award to L & M 
under the first RFQ on September 14, and to ASC under the second RFQ 
on October 10, as the next low quoters on the QSL.      

BACKGROUND

REFA had submitted an initial application for the QSL (including a 
quality assurance (QA) manual), dated March 20, 1996.  After review of 
the application, DISC determined that the firm was not in compliance 
with certain QSL criteria (as contained in the QSL Criteria and 
Provisions for Class 3 Threaded Fasteners, dated February 15, 1996), 
including requirements for (1) product traceability, i.e., "[a] 
documented system . . . which unequivocally indicates that the 
distributor's products have been produced by a customer approved 
manufacturer"; (2) lot control and marking, i.e., ensuring lot 
identification, segregation and traceability, and that product lots 
are not commingled; and (3) periodic review of the quality control 
manual to ensure procedures are kept current with ongoing operations 
and regulatory requirements.  By letter dated May 2, the agency 
notified REFA of the specific areas of noncompliance and that its 
application would be held without action pending corrective action.  
REFA responded by submitting a revised QA manual with a letter dated 
May 22.  The Defense Contract Management Command (DCMC) subsequently 
conducted (on June 11) an on-site survey of REFA, and generally 
concluded (in a report dated June 21) that REFA had "a system for 
adequately maintaining lot control and traceability."  However, DISC 
determined that the survey report was inadequate because, 
notwithstanding DISC's specific request, DCMC had not verified that 
REFA complied with certain QSL criteria, including the requirements to 
assure product traceability to the manufacturer and lot control and 
marking with no commingling.  DISC thus concluded that additional 
information was necessary.  

Identity

On July 18, DISC requested that DCMC delay a resurvey of REFA pending 
a determination as to whether quotes submitted in the name of REFA in 
fact were being submitted by a debarred contractor, M-F Services, Inc.  
In this regard, as noted by DCMC in its June survey report and in a 
prior January 1996 pre-award survey report, in 1995 REFA had purchased 
the inventory and other assets of M-F Services, which had been 
debarred for lack of business integrity after its president was 
convicted of conspiracy in connection with defrauding DISC on 
government contracts.  DCMC noted that REFA's president previously had 
served as international sales manager for M-F Services, REFA's 
vice-president of finance had served as secretary-treasurer, and 
REFA's quality manger had worked in quality assurance at M-F Services.  
DISC's concern arose from the fact that it had received REFA quotes on 
M-F Services's letterhead.  

After being advised of DISC's concern, REFA responded (by letter dated 
July 25) that while it had purchased the assets and certain 
liabilities of M-F Services, Inc. and the right to the name "M-F 
Services," it had not acquired "the name M-F Services, Inc. or its 
corporate entity."  According to REFA, although it "operates with 
certain commercial and export customers under the name of M-F Services 
Division of REFA International, Inc.," the quotations on M-F 
Services's letterhead had been sent "in error." 

Traceability 

DISC also was concerned that the origin of the supplies that would be 
furnished by REFA was not clear; that is, DISC was not confident that 
REFA's inventory of fasteners had been manufactured or supplied by QSL 
firms.  By letter dated July 22, DISC advised REFA that any offers 
based on furnishing the M-F Services inventory would be considered 
technically unacceptable because "M-F Services' criminal conviction 
for defrauding the government makes its inventory suspect and 
inherently unreliable."  REFA responded, by letter dated August 22, 
that the M-F Services inventory is "sound and reliable," and requested 
reversal of the determination that the M-F Services inventory was 
unacceptable.  However, DISC responded (by letter dated September 10) 
that: 

     "DISC relies heavily on paperwork from its contractors; however, 
     due to M-F Services' conviction, DISC does not believe that it 
     can rely on any of its paperwork.  Thus, if REFA wishes to 
     furnish any supplies obtained from M-F Services' inventory, it 
     has two alternatives:

        "Obtain certifications which reflect traceability of the 
        product to REFA vice M-F Services.

        "Subject M-F Services's inventory to product verification 
        testing at REFA's expense and provide DISC with the test 
        results."

DISC's concern regarding REFA's inventory was increased by the results 
of a September 11 QSL resurvey performed by DISC, which disclosed that 
the M-F Services inventory was not kept separate from REFA's inventory 
and that a large portion of REFA's inventory was not traceable to a 
QSL manufacturer or supplier.  By letter dated September 30, DISC 
advised REFA that the September 11 resurvey disclosed that the 
preponderance of REFA's inventory--apparently approximately 90 
percent--consisted of "suspect and inherently unreliable material 
obtained from M-F Services," and that there was a "breakdown of 
internal communication at REFA," as evidenced by the fact that REFA's 
quality control manager was unaware of the agency's July 22 letter to 
REFA concerning the unacceptability of the M-F Services inventory.  
Noting that the "QSL program is based on the integrity of material 
supplied by our providers and supported by appropriate traceability 
documentation as well as compliance with quality program criteria and 
operational parameters," DISC advised REFA that "it is inappropriate 
to consider your listing to the QSL until these more basic issues are 
satisfactorily resolved."  The agency informed the protester that 
"[o]nce you have resolved these significant issues with Legal, in a 
manner that does not violate QSL criteria, we can pursue processing of 
your application." 

REFA filed these protests with our Office on September 30 and October 
16.  Although DISC subsequently advised REFA by letter dated November 
7 that the "outstanding legal impediments regarding REFA have been 
satisfactorily resolved," apparently referring to the issue with 
respect to the identity of the legal entity submitting quotes to the 
government, the agency maintained that certain "corrective actions are 
still outstanding and need to be addressed prior to further processing 
of your application."  The agency advised REFA that since M-F Services 
was never approved for the QSL, inventory from that company could not 
be supplied under the QSL program.  In this regard, DISC noted its 
finding that there was a lack of product traceability for a large 
portion of the inventory surveyed and that REFA's inventory was not 
segregated from the M-F Services inventory.  The agency instructed 
REFA that the M-F Services inventory must be physically segregated 
from the remainder of the firm's inventory, by including separate 
shelving and storage in the warehouse area and separate inventory line 
cards and records.  DISC noted again that REFA's quality control 
manager was not aware of the agency's July 22 letter to REFA notifying 
the firm that it was unacceptable to supply the M-F Services material 
under government contracts; the agency advised REFA that it "must take 
steps to ensure that such gross miscommunications within [the firm's] 
quality control process do not occur in the future."  DISC advised 
REFA that, once it received and accepted the firm's documented 
corrective action on these matters, it would arrange for a resurvey of 
the firm's facility as the final step to attaining inclusion on the 
QSL.         

DISCUSSION

Under 10 U.S.C.  sec.  2319 (1994), where an agency restricts contract 
award to only approved sources and imposes qualification requirements, 
unapproved sources must be given a reasonable opportunity to qualify.  
Saturn Indus., B-261954.3, Jan. 5, 1996, 96-1 CPD  para.  9.  In this 
regard, an agency imposing a qualification requirement must act 
reasonably promptly to ensure that an offeror seeking qualification is 
promptly informed as to whether qualification has been obtained and, 
if not, promptly furnished specific information as to why 
qualification was not obtained.  Rotair Indus., 69 Comp. Gen. 684 
(1990), 90-2 CPD  para.  154.  An agency's technical determination 
concerning the qualifications of offerors must be reasonable.  
Precision Metal Prods., Inc., B-261680, Sept. 8, 1995, 95-2 CPD  para.  105.

There is no evidence of any unreasonable material delay on the part of 
the agency in the processing of REFA's application for the QSL.  
Although REFA submitted its QSL application in March, the record shows 
that DISC had reasonable concerns--the identity of the offeror and 
traceability of the inventory--which led to the initial delay, and 
ultimate rejection (pending corrective action), of REFA's application, 
and that the agency kept REFA apprised of these concerns during its 
investigation of these matters.  

In any case, the real issue here is not delay by DISC, but REFA's 
disagreement with DISC over whether its concerns regarding the firm's 
inventory are legitimate.  In this regard, even after the issue 
created by REFA as to the identity of the quoter was resolved, REFA's 
treatment of the debarred contractor's inventory delayed, and has 
continued to delay, approval of REFA's QSL application.  The agency's 
concerns are reasonable.  It is indisputable that reliable 
documentation is essential to safeguarding the integrity of the QSL 
supply process.  We think it is equally clear that M-F Services's 
legal problems--debarment for lack of business integrity in connection 
with a conspiracy to defraud the government--and lack of QSL status 
legitimately bring into question whether supplies from that firm's 
inventory reliably can be accepted as QSL products.  As there was no 
evidence that those products definitely were furnished by QSL 
suppliers and manufacturers, there simply is no basis to object to 
DISC's position that M-F Services's inventory could not be supplied 
for QSL procurements (unless REFA first took the steps noted above), 
and that segregation of that inventory from the rest of REFA's 
inventory therefore was a necessary condition to obtaining 
qualification.  When DISC raised this matter with REFA, however, the 
firm did not agree to comply with DISC's request, or otherwise 
cooperate with DISC to alleviate its concerns, but, rather, merely 
claimed that the M-F Services inventory is "sound and reliable," and 
requested that DISC reverse its position.  

We conclude that it was reasonable for DISC to decline to approve 
REFA's QSL application when the firm's predominant source of inventory 
was from a non-QSL supplier whose documentation was reasonably viewed 
as unreliable and the firm's remaining inventory had not been reliably 
demonstrated to be traceable to a QSL manufacturer.[1]   

The protests are denied.

Comptroller General
of the United States 

1. Although REFA (in its November 5 comments) generally disputes the 
findings of DISC's September 11 resurvey (reported to REFA by letter 
dated September 30) that the M-F Services inventory was not segregated 
from REFA's inventory and that  a large amount of REFA's inventory was 
not traceable to a QSL manufacturer or supplier, there is no 
indication that REFA advised the agency prior to award of the purchase 
orders (on September 14 and October 10) of why it believed DISC's 
findings were in error, or of any corrective action taken to remedy 
the evaluated deficiencies.