TITLE:  Belleville Shoe Manufacturing Company; Altama Delta Corporation;, B-287237; B-287237.2; B-287237.3, May 17, 2001
BNUMBER:  B-287237; B-287237.2; B-287237.3
DATE:  May 17, 2001
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Belleville Shoe Manufacturing Company; Altama Delta Corporation;, B-287237;
B-287237.2; B-287237.3, May 17, 2001

Decision

Matter of: Belleville Shoe Manufacturing Company; Altama Delta Corporation;
Wellco Enterprises, Inc.

File: B-287237; B-287237.2; B-287237.3

Date: May 17, 2001

Thomas C. Wheeler, Esq., and Sheila C. Stark, Esq., Piper Marbury Rudnick &
Wolfe, for Belleville Shoe Manufacturing Company; David P. Metzger, Esq.,
Holland & Knight, for Altama Delta Corporation; and James J. McCullough,
Esq., and Steven A. Alerding, Esq., Fried, Frank, Harris, Shriver &
Jacobson, for Wellco Enterprises, Inc., the protesters.

Deniz H. Hardy, Esq., Grayson & Kubli, for McRae Industries, Inc.; and
Barbara A. Duncombe, Esq., Porter, Wright, Morris & Arthur, for Rocky Shoes
and Boots Inc., intervenors.

Sharif T. Dawson, Esq., Defense Supply Center Philadelphia, and Laura Mann
Eyester, Esq., Small Business Administration, for the agencies.

Mary G. Curcio, Esq., and John M. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

  1. Protest is sustained where, although agency reasonably determined that
     small total business set-asides were not appropriate for more than one
     portion of boot manufacturing requirement, it improperly failed to
     consider whether non-set-aside portions should be partially set-aside.
  2. Where procuring agency treats each of three contracts to be awarded
     under single solicitation as separate requirements, it is appropriate
     to perform a small business set-aside determination for each
     requirement, rather than a partial set-aside determination for the
     solicitation as a whole.
  3. Solicitation providing for best value evaluation, with technical
     factors more important than price, is subject to the regulations
     requiring agency to determine whether requirement should be partially
     set-aside for small business.
  4. In considering whether a small business concern is a responsible
     prospective offeror for purposes of a small business set-aside
     determination, agency properly considered that the concern had never
     mass-produced the item, and that another generally capable small
     business had experienced problems on a prior similar contract.
  5. Agency reasonably declined to set aside a second portion of boot
     manufacturing requirement for small business, where each awardee can
     receive only one contract, and there are only two prospective
     responsible small business concerns likely to compete, so that, after
     award of the first set-aside portion to one of the small businesses,
     there would not be two small business offers left to be considered for
     a second set-aside award.

DECISION

Belleville Shoe Manufacturing Company, Altama Delta Corporation and Wellco
Enterprises, Inc. protest the terms of request for proposals (RFP) No.
SP0100-01-R-0001, issued by the Defense Supply Center, Philadelphia (DSCP)
for infantry combat boots for the Marine Corps and the Army. The protesters
complain that DSCP improperly failed to set aside the appropriate portion of
the requirement for small business concerns.

We sustain the protests.

BACKGROUND

The boots are a defense mobilization item--in the event of troop
mobilization, there must be a sufficient boot supply to meet troop
needs--and a sufficient number of contractors therefore must be kept in
production to ensure that surge requirements can be met. Agency Report (AR)
at 3-4. The Army has not yet decided whether it will meet its requirement
for combat boots through this solicitation. DSCP determined that, if the
Army decided to do so, three contracts would have to be awarded to different
firms because no one or two producers would have sufficient capacity to meet
the surge requirements (provision for which was included in the
solicitation, RFP at 78). Id. Consequently, the solicitation provided for
the award of three indefinite-delivery, indefinite-quantity (ID/IQ)
contracts if the Army's requirement is included, with no contractor able to
receive more than one award. Request for Proposals (RFP) at 6.
Alternatively, the RFP provided that, if the Army decides prior to award not
to have its requirement included, only one contract--for the Marine Corps
requirement only--will be awarded. Id. The multiple contract alternative
divides the required quantities into three "scenarios." Scenario 1 contains
the Marine Corps requirement and part of the Army's. Scenarios 2 and 3 each
contain half of the remainder of the Army's requirement. For each scenario,
the minimum quantity is 144,593, and the maximum 298,505, pair per year. RFP
at 7-11. The single award alternative (the Marine Corps requirement alone)
provides for a minimum of 43,950, and a maximum of 73,255, pair per year.
Id. at 7.

In structuring the multiple contract alternative, DSCP determined to compete
scenarios 1 and 2 using full and open competition, and to set aside scenario
3 for small business concerns. Under the single contract alternative, a
contract will be awarded on the basis of full and open competition. Id. at
5.

The protesters raise several arguments challenging the agency's
determination to set aside only one of the three scenarios for small
business concerns and, alternatively, its failure to partially set aside
scenarios for which a total set-aside was not appropriate. We find that the
agency reasonably determined that it was appropriate to totally set aside
only one scenario, but that the agency improperly failed to consider whether
partial set-asides for the remaining scenarios were required. We discuss
each of the protesters' arguments below.

PARTIAL SET-ASIDE OF SINGLE REQUIREMENT

Contracting officers generally are required to set aside for exclusive small
business participation all procurements exceeding $100,000 where there is a
reasonable expectation of receiving fair market price offers from at least
two responsible small business concerns. Federal Acquisition Regulation
(FAR) sect. 19.502-2. If the agency determines that it is not appropriate to
issue a solicitation as a total small business set-aside, the agency must
determine if a partial set-aside is appropriate. FAR sect. 19.502-3.

The protesters maintain that, since the agency did not set aside the entire
boot requirement for small business, the setting aside of one-third of the
total requirement essentially constituted a partial set-aside determination.
They then assert generally that this determination should have included
two--instead of only one--of the scenarios or, at minimum, one-half of the
total requirement.

This argument is without merit. First, we find no basis for the protesters'
assertion that a partial set-aside would have to include one-half to
two-thirds of the requirement; nothing in the applicable regulations
requires that a partial set-aside include a certain portion of a
requirement. See FAR sect. 19.502-3(b). In any case, this argument is based on
the incorrect premise that the agency made, or was required to make, a
partial set-aside determination. Where a solicitation is issued as a partial
set-aside, the agency divides a single requirement into a set-aside and a
non-set-aside portion. FAR sect. 19.502-3(b). A small business offeror is
eligible to receive an award under the set-aside portion only if it submits
an acceptable offer under the non-set-aside portion. FAR sect.19.502-3(c)(2)(i).
The RFP here was not structured in this manner. The agency did not treat the
entire requirement as a whole by dividing it into set-aside and
non-set-aside portions; rather, based on defense mobilization needs, the
agency divided the contract into three scenarios (portions) and provided for
the award of one contract for each scenario to a firm offering on that
scenario. Further, small businesses were not required to submit an
acceptable offer for the non-set-aside portion of the requirement to be
eligible for the set-aside award; rather, they were permitted to offer on
only the set-aside scenario. Under these circumstances, the three scenarios
were in the nature of independent requirements,

rather than a single requirement. See Aalco Forwarding, Inc., et al.,
B-277241.20, B-277241.21, July 1, 1998, 98-2 CPD para. 1 at 8; Aalco Forwarding,
Inc., et al.--Recon., B-277241.26, Jan. 6, 1999, 99-1 CPD para. 1 at 3. It
follows that it was appropriate for the agency to make a separate total
set-aside determination for each scenario, and that its decision to set
aside one scenario did not constitute a partial set-aside determination.

NON-SET-ASIDE DETERMINATION

The protesters challenge the agency's determination not to totally set aside
scenario 2--in addition to scenario 3--for small business. In deciding
whether to set aside a requirement, the contracting officer must make
reasonable efforts to ascertain whether it is likely that fair market price
offers from two responsible small business concerns will be received.
Information Ventures, Inc., B-279924, Aug. 7, 1998, 98-2 CPD para. 37 at 3.
However, the set-aside determination ultimately involves a business decision
within the broad discretion of contracting officials, and our review is
generally limited to assessing whether that discretion has been abused. Id.

DSCP was aware of three small businesses which might respond to this
procurement--Belleville, Wellco and Altama. The agency believed that
Belleville and Wellco were capable of meeting its needs at fair market
prices, but that Altama was not. It therefore set aside scenario 3 based on
the finding that there were two prospective responsible small business
offerors. The agency did not set aside a second scenario since, once either
Belleville or Wellco was awarded a contract for scenario 3, there would be
only one small business offer remaining to be considered for award under the
second scenario (since, as indicated above, the agency had determined that,
due to the surge requirements, none of the firms could receive a contract
for more than one scenario); the agency concluded that it would not have
offers from two responsible small business offerors at the time of the award
of scenario 2. AR at 8. [1]

DSCP's approach was unobjectionable. We have recognized that, in determining
whether a small business firm is a responsible concern for purposes of a
set-aside determination, an agency properly may consider the firm's capacity
in light of its

obligations under current contracts. See MVM, Inc., et al., B-237620, Mar.
13, 1990, 90-1 CPD para. 270 at 4-5. This is essentially what DSCP did here, the
only difference being that it projected ahead to the point after which
either Belleville or Wellco would receive award under scenario 3. This
difference is not meaningful. Again, the agency had determined that, due to
its need to have three contractors available to meet its surge requirements,
no firm could be awarded more than one contract. Therefore, at the time of
award under a second set-aside scenario, after the first set-aside award,
there would remain only one offer from a small business concern available
for award. The agency thus correctly determined that the conditions for a
second set-aside were not met, and properly declined to set aside a second
scenario for small business.

The protesters argue that the agency improperly determined that Altama was
not a responsible small business contractor. They conclude that DSCP was
required to set aside scenario 2 because there were three responsible small
business contractors, two of which would remain available for award after
the award was made under scenario 3.

The boots being purchased differ from other combat boots used by the
services. Specifically, while other boots are water resistant, the boot here
is lined with a stitched waterproof bootie. AR at 5. In addition, the boot
has a three-layered sole system comprised of solid midsole, cushioned
polyurethane midsole, and a rubber outsole. Id. The boots can be constructed
using either the welt, stitchdown, modified direct molded sole (DMS), or
littleway method. Id. at 6; RFP amend. 1.

DSCP was primarily concerned that Altama would not be able to produce the
required quantity of boots--18,000 pairs per month--because it had never
done so before with a boot that had a three-layered sole, or a waterproof
bootie. Supplemental Agency Report (SAR) at 12. In this regard, the agency
reports that, during discussions with Altama regarding its ability to meet
the agency's needs, the agency learned that Altama had produced only
1,000-1,500 pairs of boots using the modified DMS method, AR at 9-10, and
only about 600 pairs using welt construction. Id. at 10. [2] The agency also
learned that Altama had produced only about 3,000 pairs with waterproof
booties, and that the test samples failed the Walking Simulator test. Id. at
12. In addition, the agency was concerned that Altama initially had resisted
producing the boots using either the modified DMS or the welt process, and
instead wanted to use the littleway method, which was not permitted under
the solicitation as issued. (Subsequently, the agency amended the
solicitation to allow use of the littleway method.) During a telephone
conference, Altama indicated that in the past 6 months it had produced
between 2,000 and 6,000 pairs of three-layered sole boots using the
littleway method. However, the agency considered this quantity--at most,
1,000 per month--inadequate to show that Altama would be able to produce
18,000 pairs, and viewed Altama's production experience more "made to order"
than mass production. The agency also considered the fact that Wellco,
another generally responsible boot contractor, had trouble meeting the
requirements of an earlier solicitation for boots using the modified DMS
method. AR at 12-13. The Small Business Procurement Center Representative
(PCR) concurred in the agency's decision concerning Altama. [3]

In determining the availability of responsible small business concerns for
set-aside purposes, the contracting agency's investigation goes not only to
the existence of the businesses, but also to their capability to perform the
contract. Information Ventures, Inc., supra. The record supports the
agency's finding that Altama had never produced boots of the type required
here in the large quantities required, and it was this consideration that
led to the agency's conclusion. We see nothing unreasonable in the agency's
being concerned that a contractor lacking this experience, even though
generally responsible and capable in the field, would encounter a learning
curve that would potentially result in substantial delays and administrative
burdens for the agency. This is particularly the case given the problems
previously experienced by Wellco--another experienced, generally responsible
small business--in producing the boots. See Antenna Prods. Corp.,
B-227116.2, Mar. 23, 1988, 88-1 CPD para. 297 at 3. Based on this record, the
agency reasonably determined that Altama was not capable of meeting its
needs and that there thus was no basis for issuing scenario 2 as a total
small business set-aside. [4]

PARTIAL SET-ASIDES

The protesters assert that, even if total small business set-asides were not
required for more than one scenario, the agency was required to consider
partial set-asides for the non-set-aside scenarios, that is, scenarios 1 and
2. DSCP raises several arguments to the effect that it was not required to
make partial set-aside determinations for any of the scenarios. We find the
agency's arguments unpersuasive and conclude that it was required to
consider partial set-asides for scenarios 1 and 2. We discuss each of the
agency's arguments below.

Planned Producer

Under FAR sect. 19.502-3, where an agency determines that it is not appropriate
to issue a procurement as a total small business set-aside under FAR sect.
19.502-2, it must decide whether to issue the procurement as a partial small
business set-aside if it expects one or more small business concerns to have
the ability to satisfy its requirements at a fair market price.

Although the agency was aware that there would be one small business--the
one that did not receive award under set-aside scenario 3--available to meet
its needs, DSCP asserts that it did not partially set aside scenario 1 due
to the expression of interest in the requirement by a large business planned
producer. However, we find nothing in the FAR, or elsewhere, and the agency
has pointed to nothing, that excuses an agency from determining whether to
partially set aside a requirement for small business where a large business
planned producer intends to participate in the procurement. This argument
therefore is without merit.

Best Value

DSCP argues that it was not required to consider a partial small business
set-aside, because partial set-asides are not relevant to procurements such
as this one, where proposals are to be evaluated on a best value basis, and
price is not the most important evaluation factor. To support this position,
DSCP cites the following language in FAR sect. 52.219-7 which, pursuant to FAR
sect. 19.508(d), must be included in a solicitation conducted as a partial small
business set-aside:

(4) The contractor(s) for the set-aside portion will be selected from among
the small business concerns that submitted responsive offers on the
non-set-aside portion. Negotiations will be conducted with the concern that
submitted the lowest responsive offer on the non-set-aside portion.

According to the agency, since this provision refers to conducting
negotiations with the small business offeror that submitted the lowest
responsive price, and not the best value offer, the partial set-aside
provisions apply only where award is to be made to the low offeror.

We disagree. While FAR sect. 52.219-7 indeed refers to negotiations with the
lowest priced small business concern, as the Small Business Administration
(SBA) points out (in response to our request for its views), SBA Comments at
5-8, the partial set-aside provisions in FAR part 19 contain no such
reference. In this regard, FAR sect. 19.502-3(c)(2)(i) provides:

After all awards have been made on the non-set-aside portion, the
contracting officer shall negotiate with eligible concerns on the set-aside
portion, as provided in the solicitation, and make award. Negotiations shall
be conducted only with those offerors who have submitted responsive offers
on the non-set aside portion. Negotiations shall be conducted with small
business concerns in the order of priority as indicted in the solicitation.
The set aside portion shall be awarded as provided in the solicitation. [5]

In considering the effect of the language in these provisions, we think it
is significant that nothing in the provisions--or elsewhere in the
FAR--expressly precludes partial set-asides under best value solicitations.
Further, we see nothing inherently inconsistent in applying the partial
set-aside rules to best value procurements, and the agency offers no
explanation as to why it believes this would be the case. Given these
considerations, which are consistent with SBA's view, we conclude that these
procurements are not exempt from the partial set-aside requirements. [6]

ID/IQ Contract

The protesters argue that the RFP should provide for a partial set-aside of
the Marine Corps portion of scenario 1, in the event that the Army opts not
to meet its requirement under this solicitation. The agency responds by
citing FAR sect. 16.504(c), which states that the government's preference is to
make multiple awards under ID/IQ contracts, but also provides that, if the
agency determines that it will get better terms by awarding only one
contract, it need not make multiple awards. FAR sect. 16.504(c)(1)(ii). The
agency concludes that, since it will receive better pricing with a single
award for the Marine Corps requirement, the partial set-aside rules--which
would result in more than one award--do not apply.

A partial set-aside is not a multiple award within the meaning of FAR sect.
16.504(c). Where an agency awards multiple contracts for an ID/IQ
requirement, each awardee receives a contract covering the entire
requirement. Subsequently, when orders are to be placed for specific tasks
under the contract, the agency chooses from among

the multiple contractors based on criteria established in the solicitation.
FAR sect. 16.504(a)(4)(iv). In contrast, under a partial set-aside, a portion of
the requirement is set aside for small business concerns and a portion is
not, and each of the resulting two contracts covers a specific portion of
the requirement, with no subsequent selection of a contractor for tasks when
they arise. FAR sect. 19.502-3(b). Beyond these practical differences, the
agency's argument fails to take into account the purpose of the small
business set-aside rules. Set-asides are designed to promote small business
viability, see 15 U.S.C. sect. 631(a), with no requirement that award result in
the best price for the government; rather, the only relevant constraint as
to price is that it not exceed the fair market price for the goods or
services ordered. See FAR sect. 19.501(h). Given these considerations, and the
absence of any regulation expressly excluding ID/IQ contracts from the
set-aside requirements, FAR sect. 16.504(c)(1)(ii) did not provide a valid basis
for DSCP's failing to consider a partial set-aside.

We conclude that DSCP improperly failed to determine--on the basis of the
criteria set forth in FAR sect. 19.502-3--whether scenarios 1 and 2 should have
been partially set-aside for small business, and sustain the protest on this
basis.

RECOMMENDATION

We recommend that the agency determine, in accordance with this decision,
whether scenarios 1 and 2 should have been conducted as partial small
business set-asides. If set-asides are found to be appropriate, the agency
should amend the RFP accordingly. We also recommend that the protesters be
reimbursed the reasonable costs of filing and pursuing the protests,
including attorneys' fees, in so far as those costs relate to the partial
set-aside issues decided here in their favor. 4 C.F.R. sect. 21.8(d)(1) (2001).
The protesters should submit their certified claims for those costs,
detailing the time expended and costs incurred, directly to the contracting
agency within 60 days after receipt of this decision.

The protests are sustained.

Anthony H. Gamboa

General Counsel

Notes

1. Continuing their argument discussed above, the protesters assert that,
under the partial set-aside rules, DSCP's determination of how many small
businesses were available to compete should have been based on the
requirement as a whole, rather than on three separate contracts. As
discussed, the agency did not issue the solicitation as a partial set-aside,
and properly made separate set-aside determinations for each scenario. See
Aalco Forwarding, Inc., et al., supra.

2. In a telephone conference held on April 12, 2001 with the GAO attorney
assigned to the case and the parties to the protest, Altama stated that it
has not produced any boots using the modified vulcanization method, and that
in its communications with the agency it was referring to the welt method.

3. While at the time the PCR concurred, the littleway method had not yet
been approved as a construction method, the PCR was aware that the agency's
primary concern was Altama's lack of experience in mass producing waterproof
boots with three soles. Since, as indicated by Altama during a conference
call, Altama had not mass-produced three-layered waterproof boots with the
littleway method, there is no reason to believe the PCR's position would
change.

4. In determining not to set aside scenario 1 (the combination Marine Corps
and partial Army requirements) for small businesses, DSCP relied on FAR
sect. 19.502-5(b), which provides that agencies shall not totally set aside an
item listed under the industrial readiness planning program where a large
business planned emergency producer has conveyed a desire to supply some or
all of the required items. AR at 3. The protesters do not challenge this
decision.

5. We also note that FAR sect. 19.502-4 states that partial set-asides may be
conducted using sealed bids or competitive proposals, with no mention of any
limitation on the evaluation method used.

6. By letter of today, we are recommending to the FAR Council that it
reconcile the language in FAR sect.sect. 19.502-3(c)(2)(i) and 52-219-7.