BNUMBER:  B-276704 
DATE:  July 18, 1997
TITLE: Orincon Corporation, B-276704, July 18, 1997

Matter of:Orincon Corporation

File:     B-276704

Date:July 18, 1997

Nancy O. Dix, Esq., Gray Cary Ware & Freidenrich, for the protester.
James H. Haag, Esq., Department of the Navy, for the agency.
David R. Kohler, Esq., and Susan L. Sundberg, Esq., Small Business 
Adam Vodraska, Esq., and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.


Where a proposal is unacceptable as submitted for failing to comply 
with the small business set-aside solicitation's subcontracting 
limitation, and would require major revisions to become acceptable, 
the proposal may properly be excluded from the competitive range and 
the contracting agency is under no obligation to conduct discussions 
with the offeror.


Orincon Corporation protests the actions of the Department of the 
Navy, Space and Naval Warfare Systems Command in eliminating Orincon 
from the competition for the small business set-aside contract to be 
awarded under request for proposals (RFP) No. N00039-96-R-0086(Q), for 
technology, analytical, engineering, program management, and 
administrative services in support of agency command, control, 
communications, computers, and intelligence programs.

We deny the protest.

The RFP, issued on June 10, 1996, contemplated the award of a 
cost-plus-fixed-fee level-of-effort contract for a base year with 3 
option years to the responsible offeror offering the best overall 
value to the government, technical and management approach and price 
considered.  In the procurement information section of the RFP cover 
sheet, the Navy checked the boxes indicating that the procurement is 
100 percent set aside for small business.

As issued, however, the RFP omitted the clause found at Federal 
Acquisition Regulation (FAR)  sec.  52.219-6, Notice of Total Small 
Business Set-Aside, which is required by FAR  sec.  19.508(c) to be 
inserted in solicitations for total small business set-asides.  This 
clause, among other things, provides that "[o]ffers are solicited only 
from small business concerns" and that "[a]ny award resulting from 
this solicitation will be made to a small business concern."  The RFP, 
as issued, also omitted the clause found at FAR  sec.  52.219-14, 
Limitations on Subcontracting, which FAR  sec.  19.508(e) requires to be 
inserted in the solicitation for a small business set-aside, and which 
reads, in relevant part, as follows:

     (b) By submission of an offer and execution of a contract, the 
     Offeror/Contractor agrees that in performance of the contract in 
     the case of a contract for--

        (1) Services (except construction).  At least 50 percent of 
        the cost of contract performance incurred for personnel shall 
        be expended for employees of the concern.[1]

The RFP informed offerors that the government intended to evaluate 
proposals and award a contract without discussions, but reserved the 
right to conduct discussions if necessary with offerors determined to 
be in the competitive range.

The Navy received proposals, including Orincon's, by August 7.  
Orincon, which certified itself to be a small business concern, 
proposed to team with two subcontractors, also small businesses, to 
perform 70 percent of the work under the contract.  During the course 
of evaluating Orincon's proposal, the contracting officer discovered 
that Orincon's proposal indicated that it would not itself incur at 
least 50 percent of the personnel costs of performance with its own 
employees.  Thereupon, the contracting officer reviewed the 
solicitation and realized that the required Notice of Small Business 
Set-aside and Limitations on Subcontracting clauses had been 
inadvertently omitted from the RFP.

On February 4, 1997, the Navy issued amendment 0005 to Orincon and the 
other offerors to incorporate those two clauses into the solicitation.  
The amendment informed offerors that any proposal updates directly 
caused "by this action" were to be received by the Navy by February 
18, and that no other proposal updates would be considered.  According 
to the Navy, Orincon was the only offeror which needed to take 
advantage of the opportunity to revise its proposal in response to 
amendment 0005.

Orincon, however, did not revise its proposal.  The contracting 
officer then determined that Orincon was "nonresponsible" for 
proposing to subcontract out more than 50 percent of the work under 
the contract, and, on February 26, referred his nonresponsibility 
determination to the Small Business Administration (SBA) pursuant to 
Certificate of Competency (COC) procedures.[2]  SBA contacted Orincon 
to advise it that the contracting officer had determined Orincon to be 
nonresponsible and to provide Orincon with an opportunity to appeal 
the contracting officer's determination by applying for a COC.  

In a letter dated March 10 to the contracting officer, Orincon 
complained that the belated addition of the Limitations on 
Subcontracting clause by amendment 0005

     had the effect of leaving offerors such as Orincon with no 
     opportunity to adequately restructure its entire proposal to 
     respond to this clause, and potentially makes Orincon's proposal 
     nonresponsive, despite the fact that it clearly exceeds the 
     intent of the requirement with 70 percent of the work being 
     performed by small businesses.

Orincon also requested "a waiver from the express requirement of FAR  sec.  
52.219-14, that the offeror must itself perform 50 percent of the 

The contracting officer denied Orincon's request for a waiver from the 
limitation on subcontracting in a letter dated March 18, explaining 
that, although the omission of the limitation on subcontracting clause 
from the original solicitation was an administrative oversight, he had 
no authority to waive this statutory requirement, and that "[t]he law 
requires that any proposal not meeting the requirement be deemed 

SBA declined to issue Orincon a COC, explaining in correspondence 
dated March 31 that it could not reverse the contracting officer's 
determination of nonresponsibility, because Orincon's proposal did not 
comply with the requirement of the solicitation's Limitations on 
Subcontracting clause that a concern must perform at least 50 percent 
of the cost of the contract incurred for personnel with its own 

The Navy then rejected Orincon's proposal.  This protest followed.  
The Navy states that it has neither made a competitive range 
determination nor conducted discussions with any of the offerors, and 
has not yet decided whether it will award the contract without 
discussions, as permitted by the solicitation.

Orincon argues that its proposal was in fact acceptable and that it 
did not need to take any action in response to amendment 0005 because 
under the terms of the Limitations on Subcontracting clause itself, 
Orincon, by submitting an offer, agreed that in performing the 
contract at least 50 percent of the cost of contract performance 
incurred for personnel would be expended for its own employees.  

As a general matter, an agency's judgment as to whether a small 
business offeror will comply with the subcontracting limitation is a 
matter of responsibility, and the contractor's actual compliance with 
the provision is a matter of contract administration.  Ann Riley & 
Assocs., Ltd., B-271741.2, Aug. 7, 1996, 97-1 CPD  para.  120 at 3; Global 
Assocs. Ltd., B-271693; B-271693.2, Aug. 2, 1996, 96-2 CPD  para.  100 at 5.  
However, where a proposal, on its face, should lead an agency to the 
conclusion that an offeror could not and would not comply with the 
subcontracting limitation, we have considered this to be a matter of 
the proposal's technical acceptability; a proposal that fails to 
conform to a material term and condition of the solicitation such as 
the subcontracting limitation is unacceptable and may not form the 
basis for an award.  National Medical Staffing, Inc.; PRS Consultants, 
Inc., 69 Comp. Gen. 500, 502 (1990), 90-1 CPD  para.  530 at 3-4; Ann Riley 
& Assocs., Ltd., supra. 

Here, it is undisputed that Orincon's proposal on its face showed that 
Orincon would not incur at least 50 percent of the personnel costs of 
performance with its own employees.  Indeed, the protester itself 
admits that "the percentage of work required by the Limitations on 
Subcontracting clause was not met by Orincon's proposed 
performance."[3]  Thus, Orincon's proposal did not offer to comply 
with the Limitations on Subcontracting clause incorporated into the 
amended RFP.  Since Orincon's proposal took exception to the RFP's 
mandatory subcontracting limitation, which could not be waived, 
Orincon's proposal was unacceptable as submitted.  See National 
Medical Staffing, Inc.; PRS Consultants, Inc., supra, at 4.

Orincon nevertheless contends that, given the Navy's belated addition 
of the Limitations on Subcontracting clause to the RFP after Orincon 
had already submitted its proposal, the Navy had an obligation to 
conduct discussions so as to provide Orincon an opportunity to revise 
its proposal, rather than simply determining that Orincon was 
nonresponsible and referring the matter to SBA for a COC.

We agree with the protester that where discussions are contemplated or 
conducted, an offeror's compliance with the subcontracting limitation 
is an appropriate topic for discussions so as to allow the offeror to 
modify or clarify its proposal in this regard.  See, e.g., Ann Riley & 
Assocs., Ltd., supra, at 5-6; Global Assocs. Ltd., supra at 4-6; 
Diversified Computer Consultants, supra, at 7.  However, where a 
proposal is technically unacceptable as submitted and would require 
major revisions to become acceptable, the agency is not required to 
include the proposal in the competitive range.[4]  Laboratory Sys. 
Servs., Inc., B-256323, June 10, 1994, 94-1 CPD  para.  359 at 2; Yankee 
Mach., Inc., B-249183, Oct. 29, 1992, 92-2 CPD  para.  294 at 3.  

As described above, Orincon itself admits that its proposal could not 
conform to the subcontracting limitation without major revisions.  
According to Orincon, this was the reason that it elected not to 
modify its proposal when it was provided the opportunity to do so by 
amendment 0005.  Thus, because Orincon's proposal was unacceptable as 
submitted and would require major revision to become acceptable, the 
proposal could properly be excluded from any competitive range that 
may be established and the Navy would be under no obligation to 
conduct discussions with Orincon regarding its proposal's 
noncompliance with the RFP's mandatory subcontracting limitation.[5]

The protest is denied.

Comptroller General
of the United States

1. This provision implements 15 U.S.C.  sec.  644(o)(1) (1994), which is 
designed to prevent small business concerns from subcontracting to 
large businesses the bulk of a contract set aside for small 
businesses.  Diversified Computer Consultants, B-230313; B-230313.2, 
July 5, 1988, 88-2 CPD  para.  5 at 6.

2. FAR  sec.  19.602-1 requires a contracting officer to refer a 
nonresponsibility determination involving a small business to SBA.  
SBA now considers compliance with the limitations on subcontracting an 
element of responsibility and applies its COC procedures, where, as 
here, a contracting officer determines noncompliance, the procurement 
is a full or partial small business set-aside, and the contracting 
officer refers the matter to SBA for a COC.  13 C.F.R.  sec.  125.6(c), (f) 
(1997).  SBA previously considered compliance with the limitations on 
subcontracting to be a component of size eligibility.  See CSR, Inc., 
B-260955, Aug. 7, 1995, 95-2 CPD  para.  59 at 4.  

3. Orincon argues that because it and two other small business 
contractors would perform 70 percent of the contract that it complied 
with the "intent" of the limitation of subcontracting clause, which is 
designed to prevent a small business awarded a set-aside contract from 
subcontracting the bulk of the work to a large business.  However, the 
plain language of both the statutory and regulatory limitations on 
subcontracting require that the offeror itself, not merely small 
businesses, incur at least 50 percent of the personnel costs of 
contract performance.  15 U.S.C.  sec.  644(o)(1); FAR  sec.  52.219-14.

4. FAR  sec.  15.609(a) defines the competitive range as including all 
proposals that have "a reasonable chance" of being selected for award, 
that is, those proposals which are technically acceptable as submitted 
or which are reasonably susceptible of being made acceptable through 
discussions.  DBA Sys., Inc., B-241048, Jan. 15, 1991, 91-1 CPD  para.  36 
at 5.

5. We note that SBA states that its regulations "assume that ultimate 
responsibility is determined after discussions have been completed 
with offerors in the competitive range and an apparent successful 
offeror has been selected."  See 13 C.F.R.  sec.  125.5(c)(1) (requires 
referral to SBA of a contracting officer's determination that "an 
apparently successful offeror" that has certified itself to be a small 
business lacks any element of responsibility).  However, SBA also 
states that it will consider a referral of a small business concern 
that is not the apparent successful offeror where the concern's offer 
will not receive further consideration because the contracting officer 
has determined the concern to be nonresponsible.  Here, even if 
Orincon believes that the Navy referred the matter of Orincon's 
responsibility to SBA prematurely, Orincon (which, we note, 
participated in the COC process without objection) was not prejudiced 
by the agency's or the SBA's actions, because its proposal could 
properly be eliminated from the competitive range unless SBA issued a