BNUMBER:  B-277241.16 
DATE:  March 11, 1998
TITLE: Aalco Forwarding, Inc., et al., B-277241.16, March 11, 1998
**********************************************************************

Matter of:Aalco Forwarding, Inc., et al.

File:     B-277241.16

Date:March 11, 1998

Alan F. Wohlstetter, Esq., and Stanley I. Goldman, Esq., Denning & 
Wohlstetter; James M. McHale, Esq., Seyfarth, Shaw, Fairweather & 
Geraldson; Thomas M. Auchincloss, Jr., Esq., Leo C. Franey, Esq., and 
Brian L. Troiano, Esq., Rea, Cross & Auchincloss; Richard L. DeWitt, 
Approved Forwarders Inc.; and Arthur R. Heath, A&P Shipping Corp., for 
the protesters.
G. Jerry Shaw, Esq., and Susan E. Shaw, Esq., Shaw, Bransford & 
O'Rourke, for Cendant Mobility Services Corporation, an intervenor.
Thomas J. Duffy, Esq., Maj. Jonathan C. Guden, and Ramon Morales, 
Esq., Department of the Army, for the agency.
David R. Kohler, Esq., and Timothy C. Treanor, Esq., for the United 
States Small Business Administration.
Adam Vodraska, Esq., and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

1.  Contracting agency reasonably did not set aside for exclusive 
small business participation a solicitation for a pilot program for 
the shipment and storage of the personal property of military service 
members and civilian employees between all the shipping offices in 3 
origin states and 18 destination regions in the continental United 
States and Europe, where the contracting officer had no reasonable 
expectation that two or more interested small business concerns have 
the capability to handle all the shipments and perform all the related 
requirements designated under the pilot program.

2.  Contracting agency's partial small business set-aside decision 
under a solicitation for a pilot program for the shipment and storage 
of the personal property of military service members and civilian 
employees is not reasonable, where it does not ensure an economic 
production run or reasonable lot of shipments for small business 
concerns, as required by Federal Acquisition Regulation  sec.  19.502-3(b), 
because it does not meaningfully consider the impact of the relatively 
small number of shipments available under the set-aside or the 
significant obligations, such as a committed daily capacity, imposed 
on small business contractors by the solicitation. 
DECISION

Aalco Forwarding, Inc. and 96 other self-certified small business 
concerns protest the terms of request for proposals (RFP) No. 
DAMT01-97-R-3001, issued by the Military Traffic Management Command 
(MTMC), Department of the Army, for all personnel, equipment, 
materials, supervision, and other items necessary to provide 
transportation and transportation-related services for 50 percent of 
the eligible Department of Defense (DOD) and U.S. Coast Guard 
sponsored personal property shipments from North Carolina, South 
Carolina, and Florida, to any or all of 13 destination regions in the 
continental United States and/or any or all of 5 destination regions 
in Europe.[1]  The solicitation implements a pilot program to 
reengineer DOD's current program for shipping and storing the personal 
property of its military service members and civilian employees.  In 
these protests, the protesters contend that the RFP is not properly 
set aside for small business concerns.[2]

The protests that the RFP should be totally set aside for small 
business concerns are denied and the protests of the reasonableness of 
the partial set-aside are sustained.

BACKGROUND

This procurement was the subject of prior decisions in Aalco 
Forwarding, Inc., et al., B-277241.8, B-277241.9, Oct. 21, 1997, 97-2 
CPD  para.  110, which denied various protests primarily against the 
acquisition of these services under the Federal Acquisition Regulation 
(FAR) part 12 commercial item procedures, and in Aalco Forwarding, 
Inc., et al., B-277241.12, B-277241.13, December 29, 1997, 97-2 CPD  para.  
175, which denied protests that the RFP unnecessarily bundled certain 
contract requirements to the detriment of small business concerns.  
Those decisions contain much of the background for this procurement, 
which will not be repeated here.

MTMC's intent to issue a draft solicitation for the reengineering of 
the personal property program was synopsized in the November 26, 1996, 
Commerce Business Daily (CBD), which requested that interested small 
business concerns provide the contracting office a positive statement 
of small business eligibility, the number of their employees, and 
evidence of capability to perform (including references) not later 
than 30 calendar days after release of the draft solicitation.  The 
notice stated that the determination to partially set-aside the 
solicitation for small business concerns, based upon the responses 
received, was solely within the discretion of the government.

MTMC issued the draft solicitation for a proposed pilot program on 
December 12, 1996, but did not identify the solicitation as a 
set-aside for small business.  MTMC received more than 300 expressions 
of interest in response to the CBD synopsis from firms that 
represented themselves as small business concerns.

MTMC later issued notices in the CBD, which provided that the 
solicitation may be partially set aside for small business concerns 
and that all responsible small business concerns, including those who 
responded to the earlier announcement of the draft solicitation, 
interested in being considered for a potential small business 
set-aside should submit statements identifying the specific traffic 
channels, state-to- region, which they would be interested in 
servicing, as well as evidence of capability to perform if they had 
not already done so.  The agency received about 150 responses from 
small business concerns to these notices. 

MTMC issued the "final" solicitation on March 14, 1997, for services 
in 53 designated traffic channels (origin state to destination 
region).  In an amendment issued May 14, MTMC replaced the 
solicitation in its entirety and set aside 12 percent of the traffic 
volume of 27 designated high traffic volume channels for exclusive 
small business participation.  According to the solicitation, based on 
historical data, the 27 channels selected for the set-aside represent 
approximately 85 percent of the total traffic moving under the pilot 
program, and the 12 percent of traffic volume of the 27 set-aside 
channels represents approximately 10 percent of the total estimated 
dollar value of the contracts to be let under the pilot program.

The solicitation requires offerors to list in their proposals for each 
traffic channel for which they submit offers, the daily capacity (in 
pounds) that they are committing to each shipping office in an origin 
state for the base year and each option year.  The committed daily 
capacities will be used by the agency to determine the number of 
contracts to be awarded for each traffic channel and to obligate the 
contractors to provide requested services up to their committed daily 
capacities.  Although a minimum committed daily capacity is not 
specified, the RFP states that committed daily capacities must be 
reasonable, based on the historical tonnage data.  An attachment to 
the RFP provides historical monthly/yearly tonnage data and numbers of 
shipments for each traffic channel; the information in the attachment, 
as amended, covers 100 percent of the eligible traffic for fiscal 
years 1994, 1995, and 1996 (as stated above, the pilot program will be 
for 50 percent of the eligible traffic).[3] 

The RFP reserves to the government the right to make multiple awards 
of firm, fixed-price, indefinite delivery/indefinite quantity 
contracts, and MTMC anticipates making multiple awards.  According to 
MTMC, the number of awards per channel will depend upon such factors 
as the daily capacity committed by offerors and whether the channel is 
partially set-aside for small business concerns.  The government will 
award contracts to the responsible offerors whose offers represent the 
best overall value under the stated evaluation criteria.[4]  The 
contracting officer will first make awards under the non-set-aside 
portion of the solicitation to those offerors that represent the best 
value to the government.  After all awards have been made on the 
non-set-aside portion, the contracting officer will make awards to 
eligible and responsible small business concerns on the set-aside 
portion.  Consideration for the set-aside portion will be given only 
to small business offerors who have submitted "responsive offers" on 
the non-set-aside portion.  See FAR  sec.  19.502-3(c)(2)(i).

Once the contracts are awarded, personal property shipments will be 
ordered through task orders; the orders will be placed on a rotational 
basis among the awardees for a particular traffic channel until the 
contract minimums for each awardee ($25,000) are reached.  After 
contract minimums are met, and if multiple awards have been made for a 
particular traffic channel or set-aside portion of a traffic channel, 
the awardees will compete for the task orders on a best value basis.  
For the set-aside portion, if there are multiple small business 
awardees, they will compete among themselves for subsequent set-aside 
orders; large businesses will not be able to compete for those orders.

Following the contracting officer's decision to partially set-aside 
the procurement, the Small Business Administration (SBA) Procurement 
Center Representative (PCR) recommended to the contracting officer 
that the solicitation's partial set-aside be increased to 50 percent 
of the total contract value, given that small business concerns 
constitute much of the carrier-agent market.[5]  The contracting 
officer rejected the PCR's recommendation.  In accordance with FAR  sec.  
19.505, the PCR appealed the contracting officer's decision to the 
head of the contracting activity, MTMC's commander, who upheld the 
contracting officer's earlier rejection of the PCR's 
recommendation.[6]  The SBA then appealed to the Secretary of the 
Army, whose designee, the Director of the Army's Office of Small and 
Disadvantaged Business Utilization, denied the SBA's appeal.  These 
protests followed.

Two protesters, A&P Shipping and Approved Forwarders, argue that the 
solicitation should be set-aside in its entirety for exclusive small 
business participation because small businesses are currently 
fulfilling the requirements of the current program at reasonable 
prices and there are more than two small businesses who can fulfill 
the requirements of the pilot program.  The other protesters contend 
that the partial set-aside is not an economic production run or 
reasonable lot, as required, and that the solicitation is not properly 
divided into set-aside and non-set-aside portions and is otherwise 
ambiguous in this regard.

ANALYSIS

Total Set-Aside

It is the government's policy to place a "fair proportion" of its 
acquisitions with small businesses.  15 U.S.C.  sec.  631(a) (1994); FAR  sec.  
19.201(a).  An acquisition over $100,000 must be set aside for 
exclusive small business participation if the contracting officer 
determines there is a reasonable expectation that offers will be 
obtained from at least two responsible small businesses at fair market 
prices.  FAR  sec.  19.502-2(b).  We view this determination as a business 
judgment within the contracting officer's discretion, which we will 
not disturb absent a clear showing that it has been abused.  ACCU-Lab 
Medical Testing, B-270259, Feb. 20, 1996, 96-1 CPD  para.  106 at 2; 
CardioMetrix, B-261327, Aug. 30, 1995, 95-2 CPD  para.  96 at 2. 

The prior procurement history of the current non-FAR-based program, 
through which many of the self-certified small business protesters 
participate, is not controlling here, because the current program is 
not set aside for small business and because participation in the 
current program does not automatically translate to capability to 
perform all the different requirements of the pilot program.  In 
contrast to the current program, the solicitation for the pilot 
program establishes long-term commitments from a relatively small 
number of prime contractors to replace the current traffic 
distribution system involving numerous carriers at each shipping 
office through which shipments are placed on an order-by-order basis.  
The prime contractors under the pilot program will be solely 
responsible for managing most aspects of the movement of the household 
goods and unaccompanied baggage of service members and employees, 
including some tasks currently performed by agency personnel.  These 
prime contractors will also be provided potentially greater shipping 
volumes than under the current program.  Moreover, the pilot program 
significantly expands each individual contractor's obligations, most 
importantly by requiring each contractor to commit daily capacity at 
each shipping office in an origin state.[7] 

The contracting officer decided--with the concurrence of the agency's 
small business specialist--not to set aside entire channels because 
there was insufficient data to ensure that small business concerns 
could handle all the traffic in any channel, particularly the higher 
traffic volume channels.  The contracting officer considered that the 
capability of small businesses to perform all the requirements of a 
traffic channel was not fully known or tested, and that some industry 
representatives had expressed concern about the ability of small 
business concerns to handle high traffic volumes.  Notwithstanding the 
considerable interest expressed by small businesses in this 
solicitation, the contracting officer concluded that the expressions 
of interest and the responses to the requests for capability and 
channel information did not warrant a reasonable expectation that two 
or more interested small business concerns have the capability to 
service all the traffic in each channel.  It follows that, if the 
contracting officer did not find that small businesses are capable of 
performing the requirements of any one traffic channel, she could not 
determine that small businesses are capable of performing all of the 
solicitation requirements, which encompass all traffic channels. 

Because the solicitation is for a pilot program, the SBA does not 
contest the contracting officer's determination that a total set-aside 
is inappropriate.  Given the lack of directly applicable prior 
procurement history and reasonable assurances of small business 
capability to service all of the pilot program's new requirements and 
traffic channel volumes, we cannot find the contracting officer's 
determination unreasonable.  Accordingly, the protests of A&P Shipping 
and Approved Forwarders with regard to the decision not to issue the 
solicitation as a total set-aside are denied.

Partial Set-Aside

As to partial set-asides, FAR  sec.  19.502-3 requires, in relevant part, 
that:

     (a) The contracting officer shall set aside a portion of an 
     acquisition, except for construction, for exclusive small 
     business participation when--
        (1) A total set-aside is not appropriate . . . ;
        (2) The requirement is severable into two or more economic 
        production runs or reasonable lots;
        (3) One of more small business concerns are expected to have 
        the technical competence and productive capacity to satisfy 
        the set-aside portion of the requirement at a fair market 
        price;

                    *    *    *    *    *

     (b) When the contracting officer determines that a portion of an 
     acquisition is to be set aside, the requirement shall be divided 
     into a set-aside portion and a non-set-aside portion, each of 
     which shall (1) be an economic production run or reasonable lot 
     and (2) have terms and a delivery schedule comparable to the 
     other.  When practicable, the set-aside portion should make 
     maximum use of small business capacity. 

In order to constitute an economic production run or reasonable lot, 
the set-aside portion must be of sufficient quantity as to be 
economically feasible, such as would result in reasonable prices.  See 
Kurt Mfg. Co., B-236025, Oct. 5, 1989, 89-2 CPD  para.  318 at 3-4 (decision 
not to set aside procurement partially for labor surplus area concerns 
was proper based on determination that severance of acquisition into 
two or more production lots is not economically feasible because 
substantial start-up costs would be duplicated and reflected in the 
prices of two contractors).[8]

As with a total set-aside, the decision whether a particular 
acquisition should be partially set aside for small business basically 
involves a business judgment within the discretion of the contracting 
officer, and our review is limited to ascertaining whether that 
discretion has been abused; however, the contracting officer's 
determination whether or not to set aside a portion of a procurement 
for small business must be one which can reasonably be supported.  
Digital Sys. Group, Inc., B-258262.2, Jan. 20, 1995, 95-1 CPD  para.  30 at 
7; Atlas Headwear, Inc., B-231488.2, Sept. 14, 1988, 88-2 CPD  para.  244 at 
4.

The record shows that the contracting officer executed a determination 
on April 15, 1997, that the solicitation will be accomplished as a 
partial set-aside in accordance with the criteria set forth in FAR  sec.  
19.502-3, based on the following findings:
     
     A 100 [percent] set-aside by channels with limited tonnage 
     (capacity) is unfair to small businesses.  It will result in many 
     small businesses competing for channels with limited capacity 
     with a small revenue potential.  It is more advantageous to small 
     businesses to set aside ten [10] percent of 27 channels with 
     large capacities which will result in larger revenue potential.

     The requirement is severable into two or more channels [FAR  sec.  
     19.502-3(a)(2)].  One or more small business concerns are 
     expected to have the capacity capability to satisfy the set-aside 
     portion of the requirement at a fair market price [FAR  sec.  
     19.502-3(a)(3)] . . . . The requirement will be divided into a 
     set-aside portion and a non-set aside portion.

     An analysis was performed which reflects 27 channels be 
     considered for partial set-asides denoting the following.

        a. the number of small businesses expressing interest in 
        possible set-asides by channel,
        b. the shipment estimate based on historical data of eligible 
        shipments per channel,
        c. the tonnage estimate based on historical data of eligible 
        shipments per channel,
        d. the estimated average weight.

     Channels selected as candidates for partial set-asides were based 
     on the following criteria:  channels must have sufficient 
     interest to small business and, channels must have sufficient 
     volume to provide small business concerns with reasonable 
     revenues.

The analysis referred to by the contracting officer, which used the 
same fiscal year 1995 shipping data included with the solicitation, 
proposed that 27 channels be considered as candidates for partial 
set-asides based on sufficient interest from small businesses and 
sufficient volume to provide small business with reasonable revenues.  
The analysis "rationalized that the break-even point" for sufficient 
volume was any channel with 260 shipments or more, which reflects an 
average of a shipment a day based on a 5-day workweek.  Each channel 
with a shipment volume of more than 260 shipments was identified by 
the analysis as a candidate for partial set-aside; the channels that 
were not selected were deemed not to be economically feasible for 
small business participation.

According to the contracting officer, the decision regarding the 
actual size of the partial set-aside for the selected channels was 
difficult to make because there is no accurate data measuring the 
percentage of truly independent small businesses in the moving 
industry and their capacity.  MTMC's own data, which indicates that 
598 of 717 carriers with at least interstate operating authority 
approved by the agency to participate in the current program are 
self-certified small business concerns, was not used as a basis for 
the set-aside determination.  This was because MTMC had serious 
reservations regarding the small business status of many of the 
companies approved under its current program due to outdated 
self-certifications of small business status, common financial and 
administrative control relationships between companies, affiliations 
with other moving companies and large van lines, the paper company 
status of some of the firms,[9] and the ability of some of the firms, 
particularly freight forwarders, to comply with the solicitation's 
subcontracting limitation in performing the set-aside portion of the 
contracts.[10]

To determine what the size of the partial set-aside should be for the 
selected channels, the contracting officer utilized data compiled by 
the American Movers Conference (AMC) (an industry trade group) from 
reports of carrier revenue filed with the Department of 
Transportation, which the contracting officer asserts was the best 
available information known to her at the time she made her set-aside 
determination.  The AMC data lists the revenue earned in 1994 by 67 
carriers and in 1995 by 61 carriers, including the major van lines.  
The agency interpreted this data as showing that approximately 90 
percent of all the reported revenues in the moving industry are earned 
by large businesses with the remainder earned by small businesses.

Based on the AMC data, which the contracting officer viewed as 
reflecting small business capabilities, the contracting officer 
determined that 10 percent of the value of the contracts for the pilot 
program should be set-aside for small business concerns.  As described 
above, the agency views the 10 percent contract value figure as 
equating to approximately 12 percent of the traffic volume in terms of 
either shipments or tonnage.  It is the agency's position that the 
amount of the partial set-aside is properly based on the AMC data and 
since the set-aside represents "enough business to make it worthwhile 
for a firm to compete for a contract," the set-aside constitutes an 
economic production run or reasonable lot under the circumstances.

The protesters and the SBA dispute the reasonableness of the agency 
basing the size of the partial set-aside on the AMC data.  They 
contend that the data is not an accurate reflection of the small 
business composition of the moving industry because the data does not 
include revenue generated by numerous small business moving companies 
and freight forwarders, including many that participate in the current 
program.  They also argue that application of the set-aside based on 
the AMC data does not result in sufficient shipments to be 
economically feasible for small business moving companies to compete 
for the set-aside, considering the obligations imposed by the 
solicitation.

As confirmed by the agency during these proceedings, application of 
the set-aside to the historical shipment data used by the agency in 
making its set-aside determination results in a set-aside ranging from 
a low of 33 to a high of 165 shipments per year per channel (or an 
average of less than 1 shipment per week to about 3 shipments per 
week), depending on the set-aside channel involved.[11]  Based on the 
historical data, small business prime contractors receiving contracts 
for the set-aside portions of 11 of the 27 set-aside channels would 
expect an average of 1 shipment or less per week per channel, an 
average of between 1 and 2 shipments per week per channel on 11 other 
channels, and an average of 2 or more shipments per week per channel 
on the 5 remaining set-aside channels.

Given the relatively small number of potential shipments available 
under the set-aside portion, there appears to be insufficient traffic 
volume under the set-aside to make it economically viable for small 
business to compete for, and commit to, this portion of the work.  
That is, the contractors are required to contractually bind themselves 
to be available daily at each shipping office in an origin state, yet 
will only have a relatively small number of shipments available under 
the set-aside.  In this regard, small business contractors are 
required to agree to a variety of significant obligations, 
particularly the requirement that contractors commit to daily capacity 
at each shipping office in an origin state, but on many of the 
set-aside channels there may only be an average of one or two 
shipments per week for all the shipping offices in that channel.

As stated above, in order to constitute an economic production run or 
reasonable lot, the set-aside portion must be of sufficient quantity 
as to be economically feasible, such as would result in reasonable 
prices.  See Kurt Mfg. Co., supra.  For it to be economically feasible 
for small business concerns to offer reasonable prices to compete for 
a partial set-aside, the set-aside amount should have some 
relationship to the costs associated with the obligations imposed on 
the contractor by the solicitation.  See id.  Here, whether or not the 
AMC data reflects the relative capabilities of small business moving 
companies on a macro level, we do not find that the record supports 
the agency's position that the partial set-aside constitutes an 
economic production run or reasonable lot.

MTMC argues that the amount of the partial set-aside is reasonable, 
considering that half the outgoing shipments from the origin states 
remain in the current program (in which many of the self-certified 
small business protesters participate), and because small businesses 
will compete for, and have a chance of being awarded, the 
non-set-aside portion of channels, as well as subcontracts, under the 
pilot program.  However, while small businesses are required by FAR  sec.  
19.502-3(c)(2)(i) to first compete for the non-set-aside portion, and 
may also participate as subcontractors, the regulation requires that 
the amount of the set-aside standing alone be an economic production 
run or reasonable lot.  See FAR  sec.  19.502-3(b) (each of the set-aside 
portion and non-set-aside portion shall be an economic production run 
or reasonable lot); Kurt Mfg. Co., supra, at 3-4.  

MTMC also contends that very few shipments are necessary in order for 
it to be economically feasible for a small business to contract with 
the government, citing the fact that some moving companies handle only 
a few shipments per year under the current program and for commercial 
customers.  This argument fails to take into account that, in the 
cited examples, those firms are not required to commit daily capacity 
for a 3-year period, as here, and under the current program they are 
not obligated to accept shipments.

As indicated, this pilot program significantly departs from the 
current program in a number of significant respects that must be 
accounted for by prospective contractors in deciding whether to 
submit, or how to structure, a proposal.  In particular, MTMC has 
established a requirement that all offerors, including small 
businesses, commit to daily capacities for each origin shipping office 
in a channel which they will be required to maintain as contractors, 
as well as to other significant requirements.[12]  Even though there 
are no minimums specified by the RFP, the solicitation requires that 
offerors propose reasonable committed daily capacities considering the 
historical tonnage data supplied with the solicitation.  That is, in 
order to be considered for the partial set-aside, a small business 
offeror must first commit to a daily capacity based on the historical 
tonnage data for the whole channel (non-set-aside portion and 
set-aside portion).  Thus, the solicitation apparently contemplates 
that all offerors, including small businesses, commit to a meaningful 
daily capacity if they want to be considered for an award.  As each 
origin state on which a channel is based has at least several shipping 
offices for which capacity has to be committed, all offerors must 
commit sufficient resources to the contract on a daily basis, or at 
least be able to obtain capacity from other sources on a daily basis, 
to service orders weighing up to their committed daily capacities.

Although agency contracting officials state that they considered the 
committed daily capacity requirement in making the set-aside decision 
and that the need for this requirement predates the set-aside 
determination, neither the set-aside analysis described above nor the 
remainder of the record demonstrates that committed daily capacity or 
the other significant obligations were meaningfully taken into account 
in establishing the amount of the set-aside.  Indeed, the agency 
asserts in response to the protest that the "committed daily capacity 
and the set-aside provisions are unrelated," and that "there is no 
correlation between" the contractors providing committed daily 
capacities and the number of shipments "when the agency offers no 
corresponding commitment to tender shipments," even where historical 
data indicates that shipments for the set-aside portion may be low.

MTMC maintains that the burden of committing daily capacity is 
mitigated by the concentration of shipping volume during certain 
months and because contractors can negotiate shipment pick-up dates 
and utilize delivery spread dates to avoid keeping equipment idle, and 
build the costs of committing daily capacity into their offers under 
the solicitation's best value evaluation scheme.  Other than in these 
general terms, the agency has not explained how this suggested 
flexibility makes the relatively low number of shipments expected to 
be generated under the set-aside an economic production run or 
reasonable lot of shipments, given that each small business offeror 
must commit--at a reasonable price--to meaningful daily capacity at 
each shipping office in an origin state.[13]  See id.  The fact that a 
small business firm, which has only received a set-aside award, can 
expect a higher concentration of set-aside shipments during the peak 
summer moving season and has some flexibility in scheduling shipments 
with customers does not change the overall allocation of shipments 
under the set-aside in relation to the significant obligations imposed 
on the contractor by the solicitation.  In this regard, the RFP 
requires the contractor to service, every day, the same capacity it 
has committed in its offer to each shipping office, and makes no 
provision for the contractor to adjust its committed daily capacities 
over the course of the year.

To mitigate this burden, a small business could, in theory, specify 
very low committed daily capacities, given that the relevant provision 
in the RFP does not specify a minimum committed daily capacity.  
However, the RFP would appear to preclude a committed daily capacity 
at a very low level, since, at such a level, the committed daily 
capacity might not meet the RFP's standard of "reasonableness" in 
light of the historical tonnage data.  Further, the offer of a minimal 
committed daily capacity would seem to defeat the purpose of the 
committed daily capacity requirement, since the contractor can refuse 
any shipments above this commitment.  Thus, we do not think that 
acceptance of a minimal committed daily capacity is a realistic method 
of adequately addressing the level of shipments available under the 
set-aside. 

As an illustration (unrebutted by the agency) of the apparent 
"disconnect" between the level of shipments under the set-aside and 
the solicitation's requirements for committed daily capacity, one of 
the protesters states in an affidavit that its overall daily capacity 
commitment in its offer for one of the channels, North Carolina to 
Destination Region 6, will exceed 30,000 pounds.[14]  Yet, according 
to this protester, when the set-aside is applied to the historical 
tonnage data for that channel, less than 30,000 pounds a month will be 
available under the set-aside.  Our review of the historical shipping 
data provided in the solicitation essentially confirms this assertion 
and shows that an average of about two shipments per week could be 
expected under this particular set-aside channel which includes 
several shipping offices in the origin state, and that the historical 
average weight per shipment on this channel is 4,407 pounds.  Thus, 
given the relatively small amount available in the set-aside portion, 
it is not hard to see why a small business offeror would find the 
set-aside an inadequate basis on which to contractually commit itself 
to provide the required services (at least at a reasonable price).

The apparent insufficiency of the partial set-aside, for at least of 
many, if not all, of the set-aside channels, as an economic production 
run or reasonable lot is exacerbated by the prospect of multiple 
awards under the set-aside portion which, where made, will reduce even 
further the number of prospective shipments per small business awardee 
under the set-aside.  That is, where contracts are awarded to two or 
more small business concerns for the set-aside portion of a channel, 
the prospective number of shipments per small business contractor will 
be further reduced.  The apparent insufficiency is also exacerbated by 
the requirement that the contractor provide a committed daily capacity 
for each shipping office; because each origin state has at least 
several shipping offices, the already meager numbers of shipments 
generated under the set-aside on a channel basis per awardee will be 
scattered among the various shipping offices comprising the channel.

In sum, we find that the contracting agency's partial set-aside 
decision was unreasonable.  The record does not evidence that the 
agency's decision will assure an economic production run or reasonable 
lot of shipments for small business concerns.[15]

RECOMMENDATION      

We recommend that the agency reexamine its partial set-aside 
determination under the criteria of FAR  sec.  19.502-3.[16]  In this 
regard, the agency should first estimate what is an economic 
production run or reasonable lot of shipments, considering the 
committed daily capacity obligations and the other significant 
obligations imposed on contractors by the solicitation.  The agency 
should then decide if and how the requirement can reasonably be 
divided into such economic production runs or reasonable lots; for 
example, the agency could consider entire channels, or a higher 
proportion of shipments on set-aside channels, as a basis for the 
partial set-aside.  (It may be that some of the current higher volume 
set-aside channels could be shown to be an economic production run or 
reasonable lot.)  Assuming the pilot program is apportionable into a 
set-aside portion and a non-set-aside portion, each of which is an 
economic production run or reasonable lot, the agency should determine 
whether one or more small business concerns are expected to have the 
competence and capacity to satisfy the set-aside portion at a 
reasonable price.  

Because we are sustaining the protests of the partial small business 
set-aside, we also recommend that the protesters which contested the 
partial set-aside in their protests (i.e., all protesters other than 
A&P Shipping and Approved Forwarders) be reimbursed the reasonable 
costs of filing and pursuing their protests, including reasonable 
attorneys' fees, allocable to this issue.  4 C.F.R.  sec.  21.8(d)(1); see 
ViON Corp., B-256363, June 15, 1994, 94-1 CPD  para.  373 at 13.  In 
accordance with 4 C.F.R.  sec.  21.8(f)(1), their certified claims for such 
costs, detailing the time expended and the costs incurred, must be 
submitted directly to the agency within 60 days of this decision.

The protests are denied in part and sustained in part.

Comptroller General
of the United States

1. The following firms are involved in these protests:  Aalco 
Forwarding, Inc.; AAAA Forwarding, Inc.; Air Van Lines International, 
Inc.; Allstates Worldwide Movers; Aloha Worldwide Forwarders, Inc.; 
Alumni International, Inc.; American Heritage International 
Forwarding, Inc.; American Shipping, Inc.; American World Forwarders, 
Inc.; Apollo Forwarders, Inc.; Arnold International Movers, Inc.; 
Astron Forwarding Company; BINL Incorporated; Burnham Service Company, 
Inc.; Cavalier Forwarding, Inc.; Classic Forwarding, Inc.; Davidson 
Forwarding Company; Deseret Forwarding International, Inc.; Foremost 
Forwarders, Inc.; Gateways International, Inc.; Great American 
Forwarders, Inc.; Hi-Line Forwarders, Inc.; International Services, 
Inc.; Island Forwarding, Inc.; Katy Van Lines, Inc.; Lincoln Moving & 
Storage; Miller Forwarding, Inc.; Northwest Consolidators; Ocean Air 
International, Inc.; Senate Forwarding, Inc.; Shoreline International, 
Inc.; Stevens Forwarders, Inc.; Von Der Ahe International, Inc.; Wold 
International, Inc.; Zenith Forwarders, Inc.; Acorn International 
Forwarding Company; AAA Systems, Inc.; A.C.E. International 
Forwarders; Apex Forwarding Company, Inc.; Armstrong International, 
Inc.; Art International Forwarding, Inc.; Coast Transfer Company, 
Inc.; Crystal Forwarding, Inc.; CTC Forwarding Company, Inc.; Diamond 
Forwarding, Inc.; Dyer International, Inc.; Harbour Forwarding 
Company, Inc.; HC&D Forwarders International, Inc.; Jag International, 
Inc.; The Kenderes Group, Inc.; Pearl Forwarding, Inc.; Rainier 
Overseas, Inc.; Rivers Forwarding, Inc.; Ryans's World; Sequoia 
Forwarding Company, Inc.; A-1 Relocation, Inc. d/b/a A-1 Movers of 
America; A-1 Moving & Storage, Inc.; Able Forwarders, Inc.; Andrews 
Van Lines, Inc.; A. Arnold & Son Transfer & Storage Company, Inc.; Art 
and Paul Moving & Storage; Associated Forwarding, Inc.; Associated 
Storage and Van, Inc.; Carlyle Van Lines, Inc.; Carrier Transport 
International, Inc.; Coastal Moving Company; Conrad Group, Inc.; 
Davidson Transfer & Storage Co., Inc.; Denoyer Brothers Moving & 
Storage Co.; Door To Door Moving & Storage Co.; Exhibit Transport, 
Inc.; Ferriss Warehouse & Storage Co.; Fogarty Van Lines, Inc.; Horne 
Storage Company, Inc.; Lynn Moving and Storage, Inc.; A.D. McMullen, 
Inc.; Mid-State Moving & Storage Inc.; Movers Unlimited, Inc.; Nilson 
Van & Storage; Northwest Consolidators, Inc.; Ogden Transfer & 
Storage; OK Transfer & Storage, Inc.; Pan American Van Lines, Inc.; 
Riverbend Moving & Storage; Royal Forwarding, Inc.; Sells Service, 
Inc.; South Hills Movers, Inc.; Stanley's Transfer Company; Starck Van 
Lines, Inc.; StarTrans International, Inc.; Stearns Forwarders, Inc.; 
Stearns Moving & Storage of Kokomo, Inc.; Von Der Ahe Van Lines, Inc.; 
Wainwright Transfer Co. of Fayetteville, Inc.; Weathers Bros. Transfer 
Co.-NC.; Approved Forwarders, Inc.; and A&P Shipping Corp.

2. The protesters have also protested certain provisions contained in 
a recently issued amendment to the solicitation.  These protests are 
the subject of another decision of today.

3. Eligible traffic consists of interstate and international shipments 
of household goods and unaccompanied baggage.  The remaining 50 
percent of the eligible traffic not included under the pilot program 
will be handled under the procedures of the current program.  The 
pilot program does not encompass local, intrastate, and certain other 
types of moves.

4. The RFP provides that the government intends to evaluate offers and 
award contracts without discussions, although its reserves for the 
government the right to conduct discussions if necessary.

5. In maintaining its recommendation during these protests, the SBA 
points to, among other things, the level of small business 
participation in the current program, Bureau of the Census data on 
small business revenues under certain Standard Industrial 
Classification (SIC) codes that generally encompass the work to be 
performed under this solicitation, and the amount of small business 
participation in the relocation program run by the General Services 
Administration (GSA).

6. Under FAR  sec.  19.505, the PCR may appeal the contracting officer's 
decision not to set aside a procurement for exclusive small business 
participation to the head of the contracting activity.  If the head of 
the contracting activity agrees with the contracting officer, the SBA 
may appeal the procuring agency's determination to the head of the 
agency.  The agency head's decision concerning whether the procurement 
should be restricted to small businesses is final as to the SBA and 
the contracting officer.  See Aspen Sys. Corp., B-272213.2, Oct. 22, 
1996, 96-2 CPD  para.  153 at 2 n.1.

7. The solicitation also imposes other significant obligations on the 
contractors, such as a requirement to maintain a toll-free telephone 
line available 24 hours a day for customer inquiries, problem 
resolution, and intransit visibility service during any phase of a 
move with a 2-hour response time even during non-business hours, as 
well as requirements to provide an operations manager, movement 
counseling to customers, and electronic data interchange with shipping 
offices.

8. The Kurt Mfg. decision involved regulations governing partial 
set-asides for labor surplus area concerns, which used the same 
language contained in FAR  sec.  19.502-3 requiring the set-aside portion 
to be an economic production run or reasonable lot.  See Department of 
Defense Federal Acquisition Regulation Supplement  sec.  220.7003(a) (1988 
ed.).   

9. Under the current program, some firms establish affiliates known as 
"paper companies" in order to maximize shipments under a traffic 
distribution system which essentially distributes shipments equally to 
carriers offering the same rate and to move traffic at higher rates 
during the peak moving season.  While an order  may be issued to the 
paper company, the actual move is performed by the firm behind the 
paper company, or its agents, with the firm's or agent's equipment and 
personnel.  Thus, paper companies do not actually add to the 
industry's capacity, but are a result of the current program's traffic 
distribution system.  There may be hundreds of such paper companies 
participating in the current program, which the pilot program aims to 
reduce or eliminate.

10. Because freight forwarders subcontract the actual performance of 
the transportation services they arrange, the agency had concerns 
about their eligibility for award under the solicitation's 
subcontracting limitation. 

11. The relatively small shipping volumes in the set-aside portions of 
the partially set-aside channels (33 to 165 shipments per year) are in 
many cases lower than the number of shipments in the channels not 
subject to any set-aside (historically ranging from 8 to 254 shipments 
per year with 19 of the channels having fewer than 165 shipments per 
year), because the agency determined that the channels not set aside 
had insufficient volume to provide small businesses with reasonable 
revenues.  We note that some of the protesters and the SBA now suggest 
that these low volume channels should have been considered for 
set-asides in their entirety.  MTMC responds that under the partial 
set-aside, small businesses will have greater opportunities in the 
high volume channels.

12. We previously found the solicitation's requirement for committed 
daily capacity to be reasonable.  Aalco Forwarding, Inc., et al., 
B-277241.8, B-277241.9, supra, at 20.  As noted, the solicitation also 
imposes other significant requirements, such as a 24 hour a day 
customer inquiry telephone line with a 2-hour response time, as well 
as requirements for an operations manager, movement counseling 
services for customers, and electronic data interchange capability.

13. Indeed, the relatively low number of potential shipments under the 
set-aside in many of the set-aside channels seems inconsistent with 
the pilot program's goal of consolidating shipments among relatively 
few prime contractors to take advantage of the economies of scale 
benefiting each contractor as a result of higher shipment volume.  See 
Aalco Forwarding, Inc., et al., B-277241.12, B-277241.13, supra, at 7.

14. To put this number in perspective, the typical drop frame trailer 
used for household goods transportation is reported to have a capacity 
of about 20,000 pounds.

15. As we are recommending that MTMC reevaluate its partial set-aside 
determination, we will not further address here the protest 
contentions that the partial set-aside is otherwise improperly divided 
and ambiguous. 

16. In reexamining its partial set-aside determination, the agency 
should update its analysis, taking into account information brought to 
light during these protests, such as the SBA's view that the 
solicitation's subcontracting limitation does not preclude freight 
forwarders from eligibility for award under a set-aside, given the 
applicable SIC code for this procurement.  While the SBA's 
recommendation that the set-aside be increased to 50 percent may 
result in an economic production run or reasonable lot of shipments, 
we do not think the agency should necessarily accept this 50 percent 
figure because the record does not show that it is based upon data 
that is any more reliable than the data on which MTMC relied.  For 
example, the Bureau of the Census data referred to encompasses a 
larger segment of the trucking industry overall than just the moving 
industry and the GSA program referred to is a non-FAR based program 
more akin to MTMC's current program with a traffic distribution system 
for numerous carriers maintained by the agency rather than a small 
number of prime contracts with committed daily capacity.