Contracts

[B-131078]

Subcontractor's Qualifications

Officer Approval

Contracting

A contract condition which would preclude subcontracting, except subject to determination and approval by the contracting officer of the subcontractor's qualifications to perform the work in a capable and responsible manner, is permissible under the competitive procurement system to protect the Government from: unscrupulous subcontractors, provided that the condition is stated in the invitation.

To the Secretary of the Army, February 26, 1958:

In letter of September 30, 1957, the Assistant Secretary of the Army (Logistics) requested our assistance in developing an acceptable and workable procedure to protect the Government from unscrupulous subcontractors. We were told, in part, that, in view of the fact that certain clothing manufacturers have engaged in fradudulent and criminal practices, such as the misappropriation of Government-furnished materials, bribery of Government employees, submission of false reports and false claims, substitution of inferior items for those previously approved by Government inspectors, and deliberate, fraudulent submission of substandard items, it is felt that the Government is not fully protected merely by denying the offending firms contracts, but that it must establish bid and contract conditions which will preclude them from participation in the performance of contracts as subcontractors for end item or major component manufacture.

The General Accounting Office has always been deeply concerned with conditions which operate as restrictions upon the competitive procurement system. As a general rule, its position has been that, to give effect to section 3709, Revised Statutes, 41 U. S. C. 5 (see, also, 10 U. S. C. 2305 (b) and 41 U. S. C. 253 (b)), all bids should be received and given consideration on an equal basis. At the same time, it has recognized that there might be instances in which a lack of responsibility would be so evident that a particular bidder properly could be placed in a status (variously denominated suspension, debarment, or ineligibility) and denied awards over a reasonable period of time after detailed notice, etc. (to enable it to correct objectionable conditions). 14 Comp. Gen. 313 (1934).

Originally, it was believed necessary to take the rather stern view that prior unsatisfactory service or irregularity in performance was not a valid reason for subsequent refusal to consider bids. It was felt that the Government would be fully protected by bid and performance bonds that could be required. However, in recent years, more extensive and complicated procurements have resulted in more definite and specialized administrative needs. The development can be measured best, perhaps, by the approach taken in the last ten or fifteen years to the entire question of restrictive qualifications. It has been

recognized generally that establishment of the qualifications of bidders is a function primarily of the administrative office, and that the wide degree of discretion involved should not be questioned in the absence of a clear showing of bad faith or lack of a reasonable factual basis. 35 Comp. Gen. 167; 36 Comp. Gen. 649. Also, it has been recognized generally that reasonable qualifications encompass areas not only of financial responsibility but of "judgment, skill, integrity, and fitness and ability to perform." 26 Comp. Gen. 676; 28 Comp. Gen. 662; 30 Comp. Gen. 235. Experience or past performance (upon which the ineligibility status is predicated) usually is accepted, perhaps not as a distinct qualification, but as a measure in evaluating basic qualifications of capability and responsibility. Thus, we approved rejection of a low bid for equipment of a design as yet untested (34 Comp. Gen. 227) and agreed to conditions for motion picture services requiring an individual with experience and past performance demonstrating ability of a needed degree (20 Comp. Gen. 862). 21 Comp. Gen. 56; 26 Comp. Gen. 676; 34 Comp. Gen. 86; 35 Comp. Gen. 411. In 35 Comp. Gen. 161, it was agreed that an experience qualification has been found to be more important in obtaining services (which could include manufacturing of clothing from Government-furnished materials) than it is in obtaining supplies, since rejection of substandard performance, if encountered, results in greater disruption of business and is less readily corrected or replaced.

The problem has been consistently dealt with by trying to keep the channels of competition open. This has involved an increasing need to reconcile the restrictions of qualifications necessary to meet detailed agency requirements with the overall responsibility of seeing that exclusions from competition for contracts are reasonable. With respect to the exclusion of persons placed in a status of ineligibility to receive awards, however, some unresolved problems exist in the area where this status is imposed administratively without authorizing or governing legislation. Statutory debarments are three in number-DavisBacon Act, 40 U. S. C. 276a, Walsh-Healey Act, 41 U. S. C. 35, and the Buy American Act, 41 U. S. C. 10c (there also is a sort of hybrid under section 512 of the National Housing Act, 12 U. S. C. 1731a). Administrative debarments (employing the term broadly to cover the status of exclusion) originally were carefully reviewed here. In recent years such a review largely has been abandoned in favor of more autonomous administrative action, although protests by dissatisfied bidders are given careful consideration to see that bidders are treated fairly and the Government receives the benefits contemplated by the applicable procurement statutes which require, either expressly or impliedly, that award be made to that responsible bidder whose bid conforms to the invitation specifications and will be most advantageous to the Government.

468020 O-58-37

The matter of subcontractors' qualifications has received consideration. While statutory debarment ordinarily does not, per se, preclude legitimate subcontracting with contractors doing business with the United States, the propriety of limiting by contract condition the use of subcontractors to those having qualifications, including experience, etc., of a necessary order has been recognized. 37 Comp. Gen. 196.

It seems clear, therefore, that the situation confronting the Army is not new in its essentials and that the problems it presents may be sympathetically considered within the framework of more or less established and desirable precedents. That is to say, the proper use of administrative procurement controls which proclude performance by incapable or irresponsible persons, whether as prime contractors or as subcontractors, even though restrictive of competition to that extent, is not inconsistent with the functioning or objectives of the competitive procurement system, and is in order under our decisions.

The least complicated way of achieving the desired procurement control would appear to be a simple contract condition (to which special attention should be called in invitations) that no portion of the work be sublet, except subject to determination and approval by the contracting officer of a proposed subcontractor's qualifications to perform the work in a capable and responsible manner. The same standards then could be applied in ascertaining the fitness of a subcontractor as were observed in determining the fitness of the prime contractor. Such a condition not only would result in clear and definite obligations but, also, have the virtue of leaving questions relating to the propriety of debarment status, if any, for resolution as separate matters. Obviously, authority to make a determination of fitness must precede and exist independently of its exercise in any particular instance, and debarment situations, as indicated, often pose troublesome questions on an individual basis.

From informal discussions with members of your staff it is understood that a procurement control of this nature would be workable and, supplementing such other incidental conditions as may be essential and proper in instances of particular procurements, will satisfactorily serve the needs of your Department.

[B-134623]

Military Personnel-Helium-Oxygen Performance DivesIncentive Pay-Requirements

Helium-oxygen diving incentive pay is payable on the basis of actual performance of dives, including dives to maintain proficiency, in the absence of any specific periodic performance requirements in 37 U. S. C. 235 or in the implementing Executive orders; and a certification to the disbursing officer that a member has performed helium-oxygen dives sufficient to qualify for incentive pay for

a particular three-month period is proper, even though the entire three months have not expired and provided that the member's duty assignment on board a helium-oxygen equipped vessel has not been terminated.

To the Secretary of Defense, February 26, 1958:

Further reference is made to letter dated December 9, 1957, with enclosures, from the Assistant Secretary of Defense (Comptroller) requesting a decision on certain questions concerning the crediting of incentive pay for the performance of helium-oxygen diving duty. The questions and a discussion of the matter are set forth in Committee Action No. 201 of the Military Pay and Allowance Committee, Department of Defense.

Section 204 (a) of the Career Compensation Act of 1949, as amended by section 2 of the Career Incentive Act of 1955, 69 Stat. 19, 20, 37 U. S. C. Supp. III 235 (a), authorizes, subject to such regulations as may be prescribed by the President, the payment of incentive pay for the performance of certain specified hazardous duties, including "duty involving the use of helium-oxygen for a breathing mixture in the execution of deep-sea diving." Regulations promulgated pursuant to the authority of section 204 and 501 (d) of the Career Compensation Act of 1949, 37 U. S. C. 235 and 301 (d), are contained in Executive Order No. 10152, August 17, 1950, as amended by Executive Order No. 10618, June 28, 1955. Section 9 of the Executive order, as amended, provides, in pertinent part, as follows:

(g) The term "duty involving the use of helium-oxygen for a breathing mixture in the execution of deep-sea diving" shall be construed to mean the performance of helium-oxygen diving duty aboard helium-oxygen equipped vessels by members assigned to that duty.

The following questions are presented in Military Pay and Allowance Committee Action No. 201:

1. Is the credit of incentive pay (helium-oxygen diving) dependent upon the periodic performance of actual helium-oxygen dives in direct connection with an assignment to duty in which such dives may be required?

2. If the foregoing question is answered in the affirmative, may a certification to the disbursing officer that helium-oxygen diving requirements have been fulfilled cover several months, including future months?

It is stated in the discussion in Committee Action No. 201 that the Department of the Navy, through the issuance of the following regulations for the implementation of Executive Order No. 10618, placed upon itself what is now believed to be cumbersome and unwarranted procedure for the credit of helium-oxygen diving incentive pay-presumably such regulations were issued under the provisions of paragraph 12 of Executive Order No. 10152, as amended. The regulations in question are contained in paragraph 044117, Navy Comptroller Manual, and provide, in pertinent part as follows:

b. Diving Requirements

(1) General Members required by competent orders to engage in the use of helium-oxygen for a breathing mixture in the execution of deep sea diving are required to perform during any three consecutive calendar months one or more

dives using a helium-oxygen breathing mixture from a vessel that is heliumoxygen equipped. In computing the period of three consecutive months, a fractional part of a month will be considered as a full month.

(2) Military Operations. When military operations (including operations under other than combat conditions) prevent a member from meeting diving requirements during any three consecutive calendar months, the member may meet such requirements by performing two dives in the three calendar months immediately following the three months in which the diving requirements were not met. This provision permits helium-oxygen diving pay to be credited for any three consecutive calendar months or a lesser number of consecutive calendar months for which diving requirements are met; then at the end of the six month period, a computation may be made of all dives performed and, if diving requirements have been met for the six month period, retroactive credit will be made for the months for which diving pay was not credited previously. The commanding officer's certificate that military operations of the command prevented performance of required dives will accompany or be endorsed on the Military Pay Order (DD Form 114) or Order to Adjust Account (NavMC Form 801-SD) submitted at the end of the six month period.

2. SUBSTANTIATION. Credit of incentive pay_(helium-oxygen diving) will be substantiated by a DD Form 114 or NavMC Form 801-SD containing the commanding officer's certificate of the following.

1. that the member performed duty under competent orders involving the breathing of helium-oxygen mixture in the execution of deep sea diving. 2. that the member performed the required dives.

DD Form 114 or NavMC Form 801-SD will be submitted as a substantiation voucher at the end of each month for which a member qualifies for helium-oxygen diving incentive pay.

In commenting on the above regulations, the Committee Action points out that the requirement for a monthly certification by the commanding officer that a member has met the necessary performance requirements prior to the credit of helium-oxygen diving incentive pay creates a paperwork burden; that the requirement that specific diving requirements be met prior to the time the incentive pay is credited delays the normal receipt of such pay which has a deleterious effect on the morale of the members; that the requirement of a monthly performance certificate restricts the payment of such pay to only one payday per month; and that when the operations of a vessel prevent a member from meeting actual diving requirements on a regular basis, the member's incentive pay for this type of duty may be delayed for as much as six months. The Committee Action further states that the primary mission of helium-oxygen equipped vessels is for the rescue of submarines and the readiness of the command to perform this mission is dependent on the highest state of diver training. It is stated that these vessels are required to perform functions in connection with providing services to submarines other than heliumoxygen diving, i. e., target services, torpedo recovery, standby services for submerged tests, etc.

In support of the contention that credit of helium-oxygen diving incentive pay may be paid on the basis of dives performed to maintain proficiency, as opposed to periodic performance of such dives,