On the morning of May 5, 1976, the SBA announced that pursuant to the 8(a) program, Welmetco was being awarded a subcontract, DSA Contract No. 100-76-C-1379, for the production of 60,000 units of field pack frames, the unit price for which was to be dependent upon the results of the DSA 0998 competitive bidding as described above.
On that same day, in the afternoon, when the DSA 0998 solicitation bids were opened, Welmetco was found to have submitted the low bid at $18.13 per unit less two percent discount.
Eastern submitted the next lowest bid of $19.72 -- 20.03 less two percent discount.
Because Welmetco was the successful low bidder on the DSA 0998 competitive contract, the unit price of the 8(a) program subcontract was automatically to be reduced from $25.00 to $21.88.
Also on May 5, 1976 the SBA authorized an advance payment of $200,000 to Welmetco on the 8(a) subcontract. On May 10, 1976, the DSA 1008 solicitation bids were opened and it was determined that Welmetco had the lowest bid of $4.22 per unit. Eastern was again the next lowest bidder at $4.23.
In September, 1976, the DSA Contracting Officer, Mr. Donald F. Sherry, determined that government furnished equipment would be provided to Welmetco for use under the 8(a) program subcontract because he felt Welmetco had "put SBA on notice that if they were to get the [8(a)] contract they needed the equipment and SBA proceeded to award a contract."
The existence of an oral commitment to provide such equipment was confirmed to Mr. Sherry by Mr. Leonard Sugrue, a contract negotiator in the SBA's New York office.
On September 28, 1976 the SBA authorized a Business Development Expense for Welmetco for the purchase of capital equipment.
Plaintiff Eastern contends that defendants used the 8(a) program to give special assistance to Welmetco in order to help it lower its bid on the DSA 0998 competitive solicitation, thereby providing Welmetco with immediate and distinct competitive advantage. According to plaintiff, this was accomplished through expediting the 8(a) program subcontract and awarding it at a unit price which, pursuant to an oral agreement, was contingent upon the result of the DSA 0998 competitive bidding, by orally agreeing to provide Welmetco with manufacturing equipment, and by making a commitment to give Welmetco a $200,000 special cash advance.
It is further contended that in order to expedite the 8(a) award, the following procedural irregularities took place: the usual SBA practice of preparing a written recommendation was by-passed; DSA was not given notification of the 8(a) subcontract award as required by the Armed Services Procedure Regulations (ASPR) § 1-705.5(c)(1)(L); approval of the appropriate SBA official was not secured for the Business Development Expense which would have been necessary had the $25.00 per unit figure become the 8(a) subcontract price as required by SBA Standard Operating Procedures; and the SBA's certification that it was competent to perform the 8(a) contract was dated two days subsequent to, rather than prior to, the award as required by 15 U.S.C. § 637(a)(1).
These actions, plaintiff contends, constitute abuse of the 8(a) program, exceed statutory and regulatory authority, and constitute unequal treatment of bidders on a government contract. It is further contended that an award of the DSA contracts to Welmetco would violate Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d, and the Fifth Amendment.
Defendants contend that plaintiff has no standing to challenge the 8(a) program subcontract award and the alleged related procedural irregularities. They point out that the constitutionality of the 8(a) program and regulations was previously challenged and upheld in Ray Baillie Trash Hauling, Inc. v. Kleppe, 477 F.2d 696 (5th Cir. 1973) cert. denied, 415 U.S. 914, 39 L. Ed. 2d 468, 94 S. Ct. 1410 (1974), and assert that plaintiff is attempting to do indirectly what cannot be accomplished directly.
Defendants further contend that the objectives of the program are satisfied where, as here, an 8(a) program participant achieves a competitive position in the market place.
In Ray Baillie Trash Hauling, Inc. v. Kleppe, supra, the Court found that while plaintiff therein had standing to attack the statutory and constitutional authority of the SBA to establish the 8(a) program, it did not have standing to raise issues about alleged discrimination in the administration of the program because plaintiff had never applied for participation in the program and would not be directly affected by the outcome of the litigation.
The current controversy is distinguishable. In this case, it is apparent that the 8(a) subcontract award to Welmetco and the two DSA competitive contract solicitations are intertwined.
Eastern does not allege a loss of the 8(a) subcontract, nor does it seek award of that contract for itself.
Eastern is attacking the 8(a) award to Welmetco because of the manner in which that subcontract was let and the resultant impact upon two specific competitive contracts for which Eastern was found to have submitted the next lowest bids after Welmetco. Furthermore, a finding that defendants abused their authority and the program in awarding the 8(a) subcontract to Welmetco, thereby giving Welmetco special competitive advantage, is a prerequisite to a ruling by this Court that Eastern is entitled to the ultimate relief it seeks -- award of the two DSA contracts.
It is well established that a frustrated bidder has standing to challenge illegality in the award of a government contract to another bidder. Scanwell Laboratories v. Shaffer, 137 U.S. App. D.C. 371, 424 F.2d 859 (D.C. Cir. 1970).
The Court therefore concludes that Eastern has more than a generalized interest in the fair administration of the 8(a) program, and has standing to challenge the awards of the 8(a) subcontract and the DSA competitive contracts to Welmetco.
Having determined that plaintiff has standing the Court must consider Eastern's contention that defendants abused the 8(a) program and acted outside their statutory and regulatory authority. It appears that plaintiff has scoured the record to compile a list of actions and alleged procedural irregularities which, when taken together, are asserted to amount to bestowing special competitive advantage for Welmetco.
The 8(a) program was established in order to help disadvantaged "small business concerns owned and controlled by socially or economically disadvantaged persons to achieve a competitive position in the market place ".
13 C.F.R. § 124.8-1(b). The constitutionality of the program was upheld in Ray Baillie Trash Hauling, Inc. v. Kleppe, supra. In so holding, the Court specifically observed:
"The program may produce some inequalities among small business concerns as a class. But in the area of socio-economic legislation, the government's action must be upheld if it is rationally related to a proper government purpose." 477 F.2d at 709.