_______________________________ DENIED: SEPTEMBER 28, 1993 _______________________________ GSBCA 12506-P DATA EQUIPMENT, INC., Protester, v. DEPARTMENT OF THE AIR FORCE, Respondent, and SMALL BUSINESS ADMINISTRATION, Intervenor. Judith Ward Mattox and Ronald L. Roberts of Mattox & Associates, Colorado Springs, CO, counsel for Protester. Clarence D. Long, III, Office of the General Counsel, Department of the Air Force, Washington, DC, counsel for Respondent. David R. Gray, Office of General Counsel, Small Business Administration, Washington, DC, counsel for Intervenor. Before Board Judges HENDLEY, HYATT, and DeGRAFF. HENDLEY, Board Judge. By agreement of the parties, the protest is being decided on the record inasmuch as there are no facts in dispute. Although mistakes were made, the mistakes were recognized and corrected by the respondent, the Department of the Air Force, United States Air Force Academy (Academy), so that the protested award made to another firm was proper. There were no violations of statute or regulation in the award made, and for that reason we deny the protest. Findings of Fact 1. The protester, Data Equipment, Inc., has been certified by the intervenor, the Small Business Administration (SBA), as a socially and economically disadvantaged small business and is a current participant in the SBA's "8(a)" program. Affidavit of Bill Bailey (Bailey Affidavit) (September 1, 1993) at 1. By letter dated May 5, 1993, the Academy offered one of its purchase requirements to the SBA for its 8(a) program. The requirement was for the acquisition, installation, and testing of Banyan Vines Software, compatible with the Academy's existing computer systems equipment. In its offering letter to the SBA, the Academy suggested the protester as the 8(a) firm to be matched to the requirement. The Academy also indicated that it estimated that an award would be made on or about June 30, 1993. Protest File, Exhibit 3. 2. On May 11, 1993, the SBA's Assistant District Director for Minority Small Business and Capital Ownership Development (the 8(a) program), Mr. Bailey, in the SBA's Denver, Colorado, District Office, accepted the offered requirement on behalf of the SBA for the 8(a) program and matched it to the protester as the 8(a) firm that could perform the requirement. Protest File, Exhibit 4. On or about June 18, 1993, the Academy issued a solicitation for the requirement. Protest File, Exhibit 6. On July 1, 1993, the protester responded with its final revised proposal. Protest File, Exhibit 8. It is the respondent's failure to accept this proposal that is the basis of this protest. 3. In its proposal, the protester represented that it "is . . . a regular dealer in . . . the supplies offered." The pro- tester further represented and certified "that it is . . . a small business concern and that . . . not all end items to be furnished will be manufactured or produced by a small business concern in the United States . . . ." Protest File, Exhibit 8. The parties do not dispute that the protester is a small disadvantaged regular dealer who was offering the products of Banyan Vines, a large business. The Confusion 4. On July 1, 1993, Ms. Kirby, a Contract Officer[foot #] 1 for the 8(a) program in the SBA Denver District Office, was contacted by telephone by Ms. Goforth, the Academy's Associate Director for Small Business, Director of Contracting. Ms. Goforth was concerned that the protester would be unable to comply with the "limitation ----------- FOOTNOTE BEGINS --------- [foot #] 1 Note that the individual was a "Contract Officer" and not a Contracting Officer. ----------- FOOTNOTE ENDS ----------- on subcontracting rule" because the protester was not a manufacturer. Affidavit of Tracey Kirby (Kirby Affidavit) (September 1, 1993) at 2. The limitation on subcontracting rule essentially requires the 8(a) contractor itself to perform work that constitutes at least half the cost of manufacturing the supplies without considering the cost of the material, and Ms. Kirby so informed Ms. Goforth. Ms. Kirby explained to Ms. Goforth that the subcontracting rule exempts regular dealers from the work performance requirements of the rule. Ms. Kirby believed that Ms. Goforth understood the application of that rule and that it presented no obstacle in the procurement inasmuch as the protester was a regular dealer, and hence exempt from the rule. Id. Obviously, no dealer could possibly comply with such a requirement because a dealer supplies the product of the manufacturer of the product. 5. Nonetheless, on July 6, 1993, Ms. Goforth sent a written request to the SBA's Denver office seeking a waiver of the subcontracting rule. Protest File, Exhibit 14; Kirby Affidavit at 3. After some discussion within the SBA's Denver office, the SBA officials agreed that there was no need for a waiver of the subcontracting rule inasmuch as the rule did not apply to dealers. Id. Ms. Kirby then faxed a document to Ms. Goforth which explained the operation of the subcontracting rule. Id.; Protest File, Exhibit 13. Ms. Kirby considered the Academy's concerns to be resolved. Kirby Affidavit at 4. Back on Track 6. On July 16, 1993, Ms. Goforth telephoned Mr. Bailey of the SBA's Denver office and informed him that there was a problem in complying with the "nonmanufacturer rule." The nonmanufacturer rule requires the 8(a) contractor to supply the product of a small business manufacturer. She informed Mr. Bailey, apparently for the first time, that the procurement specified the product of Banyan Vines, a large business. After reviewing the nonmanufacturer rule, Mr. Bailey telephoned Ms. Goforth and informed her that he agreed with her that the nonmanufacturer rule would preclude the award under the 8(a) program unless the rule could be waived. Mr. Bailey and Ms. Goforth discussed obtaining a waiver of the nonmanufacturer rule. The upshot of that discussion was the recognition by the Academy that obtaining a waiver to the nonmanufacturer rule could well be time consuming and without any certainty of success. Ms. Goforth and Mr. Bailey concluded that the Academy had two options: (1) the Academy could request a waiver from the SBA of the nonmanufacturer rule, or (2) the Academy could withdraw the procurement from the 8(a) program and use an alternative procurement method. Mr. Bailey advised Ms. Goforth that if the Academy decided to withdraw the procurement from the 8(a) program, he would need its decision in writing. Bailey Affidavit at 4. 7. On July 20, 1993, Ms. Goforth, on behalf of the Academy, faxed a letter to Mr. Bailey informing the SBA that the Academy was withdrawing the procurement from both the protester and the 8(a) program. Bailey Affidavit at 4; Protest File, Exhibit 18. On July 21, 1993, Mr. Bailey faxed his concurrence to the procurement being withdrawn from the 8(a) program. Protest File, Exhibit 19. On that date he also telephoned the protester and informed it that the procurement had been withdrawn from both the protester and the 8(a) program by the Academy since the nonmanufacturer rule precluded the award and the Air Force Academy's time constraints did not permit obtaining a waiver of the rule. Bailey Affidavit at 5. 8. The Academy purchased the requirements here in issue from other than the protester using other procurement methods outside the 8(a) program. Discussion The operative facts of this case are clear. The Air Force Academy initially attempted to procure its requirements in accordance with the 8(a) program. During the course of the attempted 8(a) program procurement, the Air Force Academy discovered that the supplies it required were manufactured by a large business. The protester must have known that the required products were those of a large business because, in its proposal, it did not represent that all end items to be furnished would be manufactured or produced by a small business concern but instead specifically represented that it did not offer the products of a small business. The nonmanufacturer rule is part of the Small Business Act which provides, in pertinent part: (A) An otherwise responsible business concern that is in compliance with the requirements of subparagraph (B) shall not be denied the opportunity to submit and have considered its offer for any procurement contract for the supply of a product to be let . . . . solely because such concern is other than the actual manufacturer or processor of the product to be supplied under the contract. (B) To be in compliance with the requirements referred to in subparagraph (A), such a business concern shall- (i) be primarily engaged in the wholesale or retail trade; . . . . (iii) be a regular dealer, as defined pursuant to section 35(a) of Title 41 (popularly referred to as the Walsh-Healey Public Contracts Act), in the product to be offered the Government . . .; and (iv) represent that it will supply the product of a domestic small business manufacturer or processor, unless a waiver of such requirement is granted- (I) by the Administrator, after reviewing a determination by the contracting officer that no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications (including period for performance) required of an offeror by the solicitation; or (II) by the Administrator for a product (or class of products), after determining that no small business manufacturer or processor is available to participate in the Federal procurement market. 15 U.S.C. 637(a)(17)(A) and (B) (1988 & Supp. IV 1992)(emphasis added). This statutory requirement is mirrored in the Federal Acquisition Regulation (FAR) 19.102(f), and in the SBA regulations, 13 CFR 121.906 (manufactured products under small business set-aside procurements) and 121.1106 (manufactured products under section 8(a) contracts). Under the SBA regulations governing 8(a) contracts, the SBA requires: (a) General. In section 8(a) contracts for the procurement of manufactured[foot #] 2 products, in order to qualify as a small concern, the section 8(a) concern must be either a manufacturer or a regular dealer under the Walsh-Healey Public Contracts Act . . . and, in addition, must manufacture the end item being produced, or must comply with the requirements of paragraph (b). . . . (b) Nonmanufacturers. (1) A concern need not be the manufacturer of the item(s) being acquired under a manufacturing contract, if the concern: (i) Is a small business concern under this part under a 500-employee size standard; ----------- FOOTNOTE BEGINS --------- [foot #] 2 The regulations make an obvious and necessary distinction between contracts for goods and contracts for services. ----------- FOOTNOTE ENDS ----------- (ii) Is primarily engaged in the wholesale or retail trade; (iii) Represents that it will supply the product of a small business concern that is the manufacturer of the end product,. . . or obtains a waiver of such requirement. . . . 13 CFR 121.1106(a) and (b) (1993). The basic difficulty with the protester's position is that the respondent not only did not violate any statute or regulation, it would have done so had it awarded the contract to the protester. All parties recognize that the protester is a small disadvantaged business dealer which offered the product of a large business. The protester, quite properly, did not represent that it was offering the product of a small business concern. It could not properly do so because the products called for are manufactured or produced by a large business. No waiver of the requirement that the products to be furnished be manufactured by a small business was obtained. The respondent erred in initiating an 8(a) procurement when the products to be supplied are only produced by a large business when it did not have a waiver. Inasmuch as the protester specifically did not, in its response to the erroneous solicitation, offer the product of a small business, it surely recognized that it was offering the products of a large business. The respondent's error was properly corrected prior to any award being made under that solicitation. There is nothing improper in an agency correcting its mistakes. In fact, it should always do so. Should the respondent have sought a waiver from the SBA for the requirement that the products being furnished be manufactured by a small business? Whether an agency seeks a waiver of such a requirement is more than simply a matter of "business judgment." An agency's decision to seek, or not to seek, such a waiver from the SBA is more in the nature of a programmatic decision rather than a business judgment decision. It is essentially a decision not to set-aside the procurement for purchase under the 8(a) program. In the absence of any hint of a corrupt or unscrupulous motive in the respondent's decision not to seek a waiver of the nonmanufacturer rule, there is no basis upon which we could question the agency's decision on this issue. Decision The protest is DENIED. __________________________ JAMES W. HENDLEY Board Judge We concur: ____________________________ __________________________ CATHERINE B. HYATT MARTHA H. DeGRAFF Board Judge Board Judge