grounds relied on by the contracting officer in determining that Metropolitan, the low bidder on a one year contract basis, was not a responsible firm, but concludes that we would not be justified in now directing cancellation of the contract awarded.

While the protest is denied, we feel that we should advise you that we are concerned with other features of this procurement. ASPR 1-322, the regulation governing multi-year contracts, states that the procedure described therein is one for procuring military "supplies," applicable where reduced unit prices can reasonably be anticipated over annual buys because of the elimination of repetitive high start-up costs. Further reasons enumerated in the last revision of ASPR 1-322.1 (October 1, 1966) for use of this procedure are stated to be that nonrecurring costs are distributed over a larger number of units, thus narrowing any price advantage of a firm already in production; there is greater assurance of depreciation recovery for capital investment; and the competitive base is broadened with better prospects for lower prices. (1-322.1(b) (2)). Another major objective is to obtain lower prices and substantial cost savings through assurance of continuity of production. In determining whether substantial cost savings may be realized, consideration may be given to: (1) production close out; (2) stabilization of work forces to improve production efficiency and product quality; (3) opportunity to avoid "proving out" quality control techniques each year; (4) avoiding costly testing; (5) avoiding costs of repeatedly retraining highly skilled personnel; (6) the ability to vary production rates to obtain production economies; and (7) savings through standardization of supplies. (1-322.1(b) (3)).

However, when items are regularly manufactured and offered for sale in substantial quantities in the commercial market, multi-year procedure will not be used except in unusual circumstances not here relevant (1-322.1(b)(4)). Moreover, the procedure should be used only if reduced unit prices can be reasonably anticipated over annual buys because of continuity of production or elimination of repetitive substantial startup costs, including such costs as preproduction engineering, special tooling, plant rearrangement, initial rework, initial spoilage, and pilot runs. (1–322.1 (c) (i)).

We think it is sufficiently clear from the language of the ASPR provisions, whether before or after the October 1966 revision, that the described procedures are inapplicable to the procurement of services of human beings unrelated to any mechanical appliances or equipment or to production of tangible articles. The distinction between supplies and such services as guard services is clear and well established (see ASPR 1-201.19 and 10 U.S.C. 2303), and is significant with respect to the probability of anticipated lower prices over a long term contract. In a contract for guard services certainly in a densely populated area—it is difficult to imagine how a contractor would incur any greater startup or makeready expenses than one contracting to deliver the most common of supplies. Therefore, we see no sound basis for reasonably anticipating lower bid prices on a multi-year contract for guard services, as a result of the length of the contract, than on a one-year contract for such services. In this regard, section 1-322.1(b) (4) now provides that where a supply item being procured is regularly manufactured and offered for sale in substantial quantities in the commercial markt, multi-year procedure will not be used. While this particular provision did not appear in the ASPR until October, 1966 it is not in conflict with any prior provision and we consider it to be merely confirmatory of the interpretation which would be placed upon the authorizing regulation in any event. Even if the multi-year procedure was intended to apply to the procurement of services, it is at least questionable whether its use for the services involved in this case would be consistent with this standard, since such services are regularly offered and furnished by a substantial number of established firms.

In addition, ASPR 1–322.2 (a) provides that where the period for "production" is such that a contingency for labor or material costs is likely otherwise to be included in the multi-year contract price, the contracting officer should normally use a provision for price escalation. We believe there could be few, if any, procurements in which it would be more likely that bid prices would include allowances for increases in labor costs over a three-year period than in the subject procurement of guard services, which presumably involve no substantial direct costs except for labor.

The ultimate test of the value of the multi-year technique, and the primary consideration in its creation, is its capacity to generate lower prices for the Government. In point of fact, the prices bid by Industrial, the only responsive bidder for a multi-year contract, were $14,751 higher on a multi-year basis than

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the amount obtained by prorating its bid for the one-year contract. The multi-year bid was evaluated low solely by virtue of the addition to the single year rate of the $15,000 which is considered to be the administrative costs to the Government to award annual contracts."

For the foregoing reasons we believe that use of the multi-year procedure for the procurement in question was inconsistent with the provisions of the ASPR. We also believe that failure to include an escalation clause to provide for changes in labor costs during the period of the contract must have tended either to cause a substantial contingency allowance in the price bid for the services, or to leave the contractor exposed to a substantial risk of loss, with the consequent threat of unsatisfactory service to the Government in the later years of the contract. In view of our doubts as to the propriety of the method of procurement used, we are recommending to the Secretary of Defense that use of multi-year type contracts for domestic services should be discontinued until a study can be made of the desirability of using the multi-year type of contracts for the various types of domestic services, and until appropriate provisions governing such use have been promulgated in the ASPR.

In view of the questions raised in this procurement as to the responsibility for and timeliness of the initiation of necessary security clearance procedures, and as to the obligations of bidders with respect to showing arrangements for employment of required cleared personnel prior to award of a contract, it is further recommended that future solicitations of bids or proposals for such services be issued in ample time, and contain sufficiently definite statements, to enable prospective contractors to take whatever action may be necessary to establish their ability to satisfy the requirements of the contract in these respects. The file forwarded with the report received from the Directorate, Procurement Policy concerning the protest is returned.

Attention: Mr. R. A. Cooley, Security Consultant.

GENTLEMEN: In your letters of December 14, 1966, and February 21, 1967, you protested the award of an Air Force multi-year contract for $2,180,430 to Industrial Security Systems, Inc. (Industrial), under Invitation for Bids (IFB) No. 04-694-66-19. You maintain the procuring activity was in error in concluding that you did not have the capability to perform this contract and therefore were a nonresponsible bidder.

The invitation was issued by Base Procurement Branch (SSQMK), Headquarters, 6592ND Support Group, Space Systems Division, Air Force Systems Command, for security guard and related services at Los Angeles Air Force Station, Los Angeles, California. Bids were solicited solely from small business on both a one-year and a three-year procurement basis, with services to begin July 1, 1966. The current contract was scheduled to expire June 30, 1966, and was held by California Plant Protection, Inc., a corporation owned and operated by the same management which owns and operates Industrial, the successful bidder in the instant procurement.

Pertinent clauses of the "Bidding Instructions, Terms, and Conditions" of the IFB were:

"25. MULTI-YEAR PROCUREMENT FEATURES OF THE IFB

In the event a contract is awarded under the Multi-Year Procurement feature, the attention of the Bidders is directed to the following:

"(b) The 'Cancellation of Items' clause of the General Provisions which allows the Government to cancel the requirements for the second program year or all program years subsequent to the first program year by written notification by the Contracting Officer to the Contractor:

Not later than 30 days prior to the expiration of the first program year, or
Not later than 30 days prior to the expiration of the second program year.

"26. EVALUATION OF BIDS

In comparing prices for the first program year requirement against prices for the multi-year requirement, the evaluated unit price for each item of the lowest evaluated bid received or [sic] the first year alternative shall be multiplied by the total number of units of that item required by the multi-year alternative. The sum of these products, plus the amount of $15,000.00 which is considered to be the administrative costs to the Government to award annual contracts, shall be compared against the total evaluated price of the lowest bid received for all items under the multi-year alternative. If the multi-year price is low, award shall be made on that basis; otherwise, award shall be made on the basis of the first program year alternative.

"35. SUBMISSION OF BIDS

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"(a) Bids must be submitted for the full quantities of service under Part III (a) [one year] and Part III (b) [multi-year] or for Part III (a) only. Bids submitted for less than the full quantities of each item shall be considered nonresponsive.

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"36. CONTRACTOR SECURITY CLEARANCE

"A Facility Security Clearance up to and including 'TOP SECRET' is a prerequisite to being awarded a contract under this Invitation for Bid. In addition all personnel employed by the Contractor in the performance of this contract shall possess a minimum Secret access authorization, and 25% of the employees must possess a TOP SECRET access authorization in accordance with Exhibit 'A'."

[The pertinent provisions of Exhiibt A with respect to the required Security Clearances are as follows:

"TECHNICAL SPECIFICATIONS

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"3. All persons employed in the performance of this contract will have a minimum clearance of Secret. Top Secret clearances are required for at least 25 per cent of the security officers on duty and for those other persons specified in the individual job descriptions. Requests for clearances of contractor employees furnished under this contract who must be processed for clearances will be submitted to their security cognizant agency.

"GENERAL TERMS

"1. The contractor will be solely responsible for initiating and obtaining Secret or Top Secret security clearances for all of his personnel prior to assigning them to duty under this contract."]

"37. QUALIFICATIONS OF BIDDERS

"Bidders shall submit evidence of at least two years broad, progressive, and responsible experience in the field of Plant Protection.

The Bidder shall give evidence of prior satisfactory experience with the Department of Defense, Defense Industry, or similar type of industry. The evidence submitted must indicate that the bidder has a demonstrated capability to perform under this contract. Bids will be evaluated on the basis of two years of the abovementioned experience, and experience should have been within the last two years. In addition, bidders must be licensed in accordance with Chapter 11 of the Business and Professions Code of the State of California with a Private Patrol License."

After bid opening on May 12, 1966, the lowest bidder was declared nonresponsible, and the second lowest bidder was permitted to withdraw its bid on the ground of mistake. Your bid for a one year contract, in the aggregate face amount of $705,354.96, was the next lowest by approximately $18,700. The lowest bid on the three-year basis was that of Industrial Security Systems, in the aggregate face amount of $2,180,430.

Because of what she considered to be ambiguities or obvious errors in your bid the contracting officer asked for clarification, and on the basis of your reply

concluded that your bid was not responsive. In a letter of May 27, 1966, you were advised that your bid was not considered responsive to the IFB.

By letter of June 1, 1966, you protested the contracting Officer's decision, and your protest was forwarded on June 7 to the Air Force Systems Command. In an internal memorandum of June 21, 1966, the Command upheld your protest, on the grounds that your one year bid was indisputably responsive as submitted, and that documents submitted thereafter neither proved nor were intended to indicate a mistake in the one year bid. The Command recommended, however, that in view of the careless manner in which your bid had been prepared, your standing as a responsible bidder should be carefully reviewed.

On June 23, 1966, the contracting officer requested a preaward survey of your capabilities from the Defense Contract Administration Services (DCAS) office in Baltimore, the location of your executive office. Section 1-905.4 (a) of the Armed Services Procurement Regulation (ASPR) defines a preaward survey as an evaluation of a bidder's capability for use by the contracting officer in determining the bidder's responsibility, and section 1-905.4(b) of ASPR states that such surveys shall be required when the information available to the purchasing office is not sufficient to enable the contracting officer to make a determination regarding the responsibility of a prospective contractor. In accordance with ASPR 1-905.4(b), the contracting officer included in her request for a survey various factors she thought should receive special emphasis, such as the discrepancies in your worksheets and the fact that, while the contractor and 25 percent of his employees must have top secret clearance, you had indicated you had secret clearance only.

The report states you were advised of the pending survey several days before it took place on June 28, 1966. At this time, two employees at your executive office were interviewed by DCAS personnel. Presumably it was during the period of five days between June 23, when the survey was ordered, and June 28, that you also became aware that you were no longer considered a nonresponsive bidder.

The report indicates that since the then current contract for guard services at SSQMK was scheduled to expire on June 30, 1966, and since more time would be required to complete the preaward survey, the contracting officer initiated negotiations to expend the contract of the incumbent contractor. However, the management of California (and Industrial) indicated that short term extensions of its existing contract would work a hardship and require it to demand an additional $5,000 per month in excess of Industrial's bid price. The contracting officer did not agree to pay this additional charge and did not issue an order for services for an interim period. Under the terms of the contract it could have been extended for 3 one-month increments, without any increase in cost, upon 30 days notice by the Government.

The findings of the partially completed preaward survey, dated June 29, 1966, were as follows:

"(a) The Metropolitan Security Service was incorporated in September of 1964. The company is expanding and appears to be aggressive and capable in its present contracts. However, this company has not been in existence for two (2) years and does not have broad experience in the field of plant protection as required by paragraph 37 of the IFB.

"(b) The Metropolitan Security Service does not have a top secret facility clearance. This is required by paragraph 36 of the IFB. The time required to process a company for a Top Secret Clearance precludes this company from having such a clearance by 1 August.

"(c) Paragraph 36 of the IFB requires 25% of the employees to have a Top Secret clearance. Since at the present time no members of the Metropolitan Security Service have a top secret clearance they plan to meet this requirement with top secret cleared personnel in the Los Angeles area. Since Top Secret cleared people are critical in the Los Angeles area I doubt if this requirement can be fulfilled. As of this date no attempts have been made by the Metropolitan Security Service to hire personnel for the critical Top Secret positions except for the position of guard force manager."

The recommendation of "No Award" was based on the following conclusions: “1. Unsatisfactory Technical Capabilities (insufficient qualifying experience required under para. 37 of IFB).

"2. Unsatisfactory security clearance. (Top Secret required. Contractor has Secret).

"3. Inadequate labor resources due to security requirements.
"4. Inability to meet schedule requirements due to the above."

The contracting officer states that on June 30, 1966, DCAS personnel telephoned her to advise that on the basis of the preaward survey they were going to recommend "No Award" to your firm. She says DCAS had concluded that you could not meet the schedule requirements "primarily because, in its judgment, Metropolitan could not supply sufficient personnel of the proper level of security clearance in time to begin performance of the contract at the time required." (Emphasis supplied.) The contracting officer says she concurred in DCAS's judgment, but the administrative report does not indicate whether DCAS had informed her of the reasons, primary or otherwise, on which they had based their decision not to recommend you for award.

Having determined that you were not responsible, the contracting officer made award to Industrial on June 30, 1966, on the multi-year basis, which, under the method of evaluation fixed by Article 26 of the bidding instructions, resulted in a lower cost to the Government than its one year bid, although its multi-year bid was $14,761 higher than its one year bid price prorated over a 3 year period. Before the award, another contracting officer had certified in accordance with ASPR 1-705.4 (c) (iv) that urgency precluded referral of the matter to the Small Business Administration (SBA). This decision was cleared with the activity's Small Business Specialist and the Los Angeles SBA office.

On July 6, 1966, the preaward survey was completed with a finding by the financial analyst that you had the financial capability to perform the contract. In a letter dated July 7, 1966, you submitted to the contracting officer a protest against the award, which protest was denied on October 12, 1966. You submitted a protest to this Office in a letter dated December 14, 1966. The administrative report to your protest was received here on February 9, 1967, and was submitted to you for comment. Your comments were received here on February 23, 1967. You contend that you were incorporated on October 12, 1963, and that you therefore exceeded the 2-year experience requirement of paragraph 37; that the requirement for a top secret facility clearance is discriminatory because under applicable regulations only a "user agency" may initiate such clearance and only for a contractor presently performing a "top secret" contract; and that you are capable of supplying the required personnel, including the 25 percent with top secret clearance, from your present organization outside the Los Angeles area, as well as by hiring from an adequate pool of qualified applicants within the local area, including, in accordance with normal security business procedures, employees of the incumbent contractor. You also contend that the contracting officer made her determination on the basis of an incomplete survey, and erred in failing to refer your case to the SBA for its determination of your responsibility. You seek cancellation of the awarded contract, and a readvertisement for bids on the remaining term of such contract.

With respect to your first contention, it is significant that the language of paragraph 37 does not say a bid from a firm with less than 2 years experience will be rejected, but rather requires that a firm's evidence of experience "must" demonstrate a capability to perform the contract, and suggests that less than 2 years experience will weigh heavily against the success of such a demonstration. The preaward survey concluded that while you had demonstrated your capability in one past similar contract with the Army, and two current similar contracts (one with the Army), your experience was not considered, for unexplained reasons, as "broad" as required by paragraph 37. The preaward survey apparently had reference, at least in part, to information obtained from your own employees that you had been incorporated for less than two years. Nevertheless, the contracting officer, who is the official primarily responsible for deciding the issue of responsibility, says your financial capability was not questioned, and concedes that your past performance leaves "no doubt as to [your] capability to perform." As indicated, her determination of nonresponsibility was reached on the ground that your "lack of preparation" for this contract resulted in your "inability to perform when required."

With respect to the "preparation" for performance of the contract, you and the contracting officer each maintain it was the responsibility of the other to initiate a request for a facility "Top Secret" security clearance. You go further and state that under provisions of the Department of Defense (DOD) Industrial Security Manual (DOD 5220. 22M) only a contractor performing "top secret" services could obtain a top secret clearance.

The Manual to which you refer appears to be a condensed version of the DoD Industrial Security Regulation, dated March 1, 1965; and we assume you have in mind that edition of the Manual dated March 1, 1965, which was in effect at the time prior to the instant contract, rather than to the one which superseded it and became effective on July 1, 1966, the date of the contract.