TITLE:  McGregor Manufacturing Corporation, B-285341, August 18, 2000
BNUMBER:  B-285341
DATE:  August 18, 2000
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McGregor Manufacturing Corporation, B-285341, August 18, 2000

Decision

Matter of: McGregor Manufacturing Corporation

File: B-285341

Date: August 18, 2000

William H. Carroll, Esq., Dykema Gossett, for the protester.

Vera Meza, Esq., and Wade Brown, Esq., U.S. Army Materiel Command, for the
agency.

Peter A. Iannicelli, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

The Army reasonably restricted urgent purchase of deswirl ducts-an engine
part deployed on helicopters to help prevent heat-seeking missiles from
locking on, tracking, and destroying the helicopters while they hover-to the
awardee, the original equipment manufacturer, and excluded the protester
from competing, where the record establishes an urgent need for the item
because the agency had very few of the parts in stock, a large number of the
parts were back-ordered, and a number of helicopters for which the part were
ordered were not able to perform their missions. Though the protester had
been awarded a contract to produce the item more than 3 years earlier, the
protester had experienced many performance delays and had not successfully
produced even one usable item for the agency by the time the urgent buy was
initiated.

DECISION

McGregor Manufacturing Corporation (McGregor) protests the United States
Army Aviation & Missile Command's (AMCOM) issuance of a delivery order to
General Electric Company (GE) for deswirl ducts. [1] The protester contends
that the Army unreasonably determined that it had an urgent need for deswirl
ducts and, therefore, improperly acquired them from GE on a sole-source
basis without allowing McGregor to compete for the contract.

We deny the protest.

A deswirl duct is a component of the Hover Infra Red Suppressor System,
which is deployed on the UH-60 Blackhawk helicopter. The system recirculates
hot exhaust gases, mixing them with cooler ambient air, before releasing the
exhaust gases into the atmosphere at a cooler temperature. The system
reduces the ability of heat-seeking missiles to lock on, track, and destroy
the helicopter while it is hovering. Contracting Officer's Statement at 1
n.1. Before 1996, the only approved sources for deswirl ducts were GE (the
original equipment manufacturer) and Sikorsky Aircraft Corporation (the
prime contractor for the UH-60 helicopter), and all of the Army's purchases
of deswirl ducts were either from Sikorsky, with GE as a subcontractor, or
from GE directly. However, there never was any real competition to supply
the Army with deswirl ducts because Sikorsky never competed with GE.
Contracting Officer's Statement at 2. In 1996, McGregor submitted a source
approval package for this part to the Army and became an approved source.

The Army explained that, shortly thereafter, believing that the technical
data package (TDP) was adequate to allow McGregor to produce deswirl ducts,
the Army conducted its first competitive procurement for deswirl ducts.
Hearing Transcript (Tr.) at 51-53. [2] Sikorsky declined to compete, and
only GE and McGregor submitted proposals. Although GE's price was lower than
McGregor's, GE's proposal was nonresponsive to the required delivery
schedule. Agency Report, Tab 10, Price Negotiation Memorandum, at 1-2. Thus,
in August 1996, the Army awarded its first contract to McGregor (contract
No. DAAJ09-96-C-0319, hereinafter referred to as contract 0319) for 343
deswirl ducts. Contracting Officer's Statement at 1-2.

McGregor and the Army experienced numerous delays under contract 0319 that
prevented McGregor from manufacturing acceptable deswirl ducts in accord
with the original contract schedule. See generally Contracting Officer's
Statement at 2-10; Protester's Comments at 5-22. We briefly describe below
several instances that are both significant and illustrative of the numerous
delays incurred.

Some of the delay resulted from alleged deficiencies in the TDP that
McGregor informed AMCOM it had discovered shortly after contract award and
which McGregor asserted required resolution before McGregor could begin to
manufacture the first article unit. For example, the TDP was missing a
"mylar" template--a full-scale plastic template, similar to a sewing
pattern, used to manufacture deswirl ducts. Contracting Officer's Statement
at 2-3; Agency Additional Statement, June 28, 2000, at 1. Since AMCOM did
not have the mylar template and Army engineers were unable to obtain it from
Sikorsky, the Army gave McGregor a sample of the part for which the mylar
template was used, and McGregor used reverse-engineering to create the mylar
template. Contracting Officer's Statement at 3.

Yet another delay arose out of a dispute regarding McGregor's decision to
use an automated welding process to manufacture the deswirl ducts.
Apparently, the Defense Contract Management Command's quality assurance
representative insisted that McGregor had to weld the production units
manually, because McGregor's first article had been manually welded. After
much discussion and considerable delay, the agency agreed to automated
welding, contingent upon McGregor's first production unit using automated
welding passing a second fit verification test; several additional months
passed before the fit test was successfully completed. Contracting Officer's
Statement at 4-5; Protester's Comments at 5-7.

Because of the numerous delays, McGregor proposed and the Army agreed to a
revised delivery schedule under which the Army would begin receiving deswirl
ducts by May 30, 1998--more than 1 year after the originally-scheduled
initial delivery date and a year and 9 months after McGregor had been
awarded its first contract. Contracting Officer's Statement at 5.

The agency explains that, during this time period, the Army's supply of
deswirl ducts was depleted and a large quantity of backorders had
accumulated, creating the potential for serious impact on the operational
capability of units that rely on the UH-60 Blackhawk helicopter. Thus, in
May 1998, the Army determined that it had an urgent need for 100 deswirl
ducts. Contracting Officer's Statement at 5-6. Shortly after the urgency
determination was made, McGregor informed the Army that one of its
subcontractors for contract 0319 had experienced a "tragic" fire that
destroyed 90 percent of its manufacturing equipment and 80 percent of its
plant. McGregor also informed the Army that while its May and June
deliveries would not be affected, it would have to renegotiate the balance
of its delivery schedule with the Army. Contracting Officer's Statement
at 6; Agency Report, Tab 48, Letter from McGregor to AMCOM 1 (May 22, 1998);
Letter from McGregor to AMCOM 1 (June 5, 1998).

In late June 1998, because of the ever-increasing backlog of requisitions
for deswirl ducts as well as uncertainty regarding McGregor's contract 0319,
the Army awarded a sole-source contract to GE for 100 deswirl ducts on an
urgency basis. Contracting Officer's Statement at 6; Agency Report, Tab 49,
Determination and Findings and Approval for Use of an Undefinitized Contract
Action, at 1. When McGregor learned of the award to GE, it filed a protest
with our Office (reference No. B-281210) alleging that the sole-source award
to GE was improper.

In December 1998, the Army agreed to a revised (i.e., delayed) delivery
schedule as proposed by McGregor for its original contract. On February 18,
1999, in order to settle McGregor's protest of the sole-source contract
awarded to GE, the Army awarded McGregor a second contract (contract No.
DAAH23-99-C-0030, hereinafter referred to as contract 0030) for an equal
quantity (i.e., 100 units) of deswirl ducts. Contracting Officer's Statement
at 7; Agency Report, Tab 2, Legal Memorandum, at 7-8.

In April 1999, the Army discovered that the TDP that it had provided to
McGregor, and which McGregor had used to manufacture the deswirl ducts, did
not contain the most recent revision (called revision K) to a GE drawing.
Revision K required that a reinforcing bracket (called a "doubler") be
attached to the fins or vanes of the deswirl ducts to prevent breakage
during engine operation. Contracting Officer's Statement at 7. During the
hearing, the Army explained that it had supplied some of the
McGregor-manufactured deswirl ducts to the Navy and, in late February 1999,
the Navy notified Army engineers that there was a problem with the
McGregor-manufactured parts. Even though McGregor had manufactured the
deswirl ducts to the specifications contained in the TDP, the vanes of the
deswirl ducts were being damaged, or were separating from the rest of the
part, and, in some instances, were shooting out of the aircraft with the
exhaust. The Navy informed the Army that, because of concern over the safety
of flag crews working near the aircraft, the Navy was planning to ground its
aircraft. Tr. at 137-41. The Army, therefore, issued a stop work order to
McGregor on both of its contracts until the Army could update the TDP in
accordance with revision K. [3]

Because of incorporation of revision K into the TDP, and in order to resolve
the problems with the vanes, the Army and McGregor discussed how best to
rework, rather than scrap, deswirl ducts that had already been produced.
McGregor suggested several remedies, which Army engineers evaluated.
Eventually, it was agreed that McGregor would add the doublers to each unit
and then repeat the brazing cycle when necessary. [4] McGregor also proposed
several configuration changes to conform reworked parts to revision K,
requested a new first article test, and stated that it would have to
purchase new tooling and that it would submit a claim for an equitable
adjustment for the additional work required of it. Discussions and
clarifications were held regarding the proposed configuration changes. The
Army approved the request for a new first article test and new tooling
(contingent upon Army approval of that tooling). These actions, and others,
required that the Army and McGregor negotiate revised delivery schedules,
equitable adjustments, and new prices. In all, more than a year passed
between the discovery that the TDP was missing revision K and modification
of the contract to reflect resolution of all issues. [5]

On February 4, 2000, prior to resolution of the above issues on McGregor's
two contracts, the contracting officer executed a justification and approval
(J&A) for purchasing 273 deswirl ducts from GE on a sole-source basis,
citing the unusual and compelling urgency of the requirement. The J&A stated
that Sikorsky would not compete for this requirement, that McGregor was
still under a stop work order on both of its prior contracts, and that
McGregor still owed the Army 323 deswirl ducts under its prior contracts.
[6] Agency Report, Tab 95, J&A for Other Than Full and Open Competition,
at 1-2.

A cognizant Army item manager stated that the deswirl duct is a
non-reparable item--if the part becomes unserviceable, it is thrown away and
a replacement part ordered. The item manager also stated that the Army's
requirements objective for this part--representing the number the Army needs
to have on hand or due in at any point in time to cover a funded war reserve
requirement--was 600 units. Tr. at 12. The item manager testified that the
Army had always planned on conducting "normal replenishment buys" for
deswirl ducts, but such buys were predicated on getting deliveries from
McGregor under its contracts; the item manager also testified that what made
the replenishment actions urgent was not getting deliveries as anticipated.
Tr. at 68-69. The contracting officer who had administered both of
McGregor's contracts testified that the Army was trying to get the TDP
deficiencies and everything else resolved "so we could have a viable
competition between McGregor and GE." Tr. at 69-70.

The J&A for the delivery order stated that the agency had only 34 units on
hand with 229 due out and that 25 of the requisitions were NMCS (not mission
capable status) backorders. [7] The J&A stated:

Failure to immediately award the contract will have an adverse effect on
operational capability on the MH-60K, Special Operations Aircraft, EH-60A
and UH-60L. . . . . Furthermore, the grounding of the UH-60Ls and MK-60Ks
compromise the mission of units in Bosnia, Korea, and

Saudi Arabia, as well as the mission of US Customs, and the Drug Enforcement
Agency (DEA).

Agency Report, Tab 95, J&A, at 1.

Accordingly, the Army issued a delivery order to GE for 273 deswirl ducts on
March 24. Agency Report, Tab 4, Delivery Order No. BS72. The Army notified
McGregor of the award to GE, and this protest was filed shortly thereafter.

The protester contends that the issuance of delivery order No. BS72 to GE on
a sole-source basis violates statutory requirements for competition. [8]
McGregor states that the Army knew as early as October 28, 1998, when the
Army asked our Office to dismiss McGregor's previous protest, that it had a
need for a large quantity of deswirl ducts, and therefore asserts that the
Army has no credible basis to assert urgency as the justification for its
sole-source award in March 2000 or for its failure to issue a pre-award CBD
notice of its intent to make that award. Protest at 1, 5-6.

Under the Competition in Contracting Act of 1984 (CICA), an agency may use
noncompetitive procedures to procure goods or services where the agency's
needs are of such an unusual and compelling urgency that the government
would be seriously injured if the agency is not permitted to limit the
number of sources from which it solicits bids or proposals. 10 U.S.C.
sect. 2304(c)(2) (1994); Federal Acquisition Regulation (FAR) sect. 6.302-2(a)(2).
While CICA requires that the agency request offers from as many sources as
practicable under the circumstances, 10 U.S.C. sect. 2304(e), FAR
sect. 6.302-2(c)(2), an agency may still limit the procurement to the only firm
it reasonably believes can properly perform the work in the available time.
Hercules Aerospace Co., B-254677, Jan. 10, 1994, 94-1 CPD para. 7 at 3. We will
object to the agency's determination only where the decision lacks a
reasonable basis. See Equa Indus., Inc., B-257197, Sept. 6, 1994, 94-2 CPD
para. 96 at 2-3. In this regard, a military agency's assertion that there is a
critical need related to human safety and which impacts military operations
carries considerable weight. Id. at 3; see also BlueStar Battery Sys. Corp.,
B-270111.2, B-270111.3, Feb. 12, 1996, 96-1 CPD para. 67 at 3. Here, the Army
reasonably determined that it had an urgent need for 273 deswirl ducts and
reasonably limited the procurement to GE, the only firm the Army believed
could fulfill the requirement within the available time.

McGregor challenges the quantity being purchased under the delivery order to
GE. The Army explained that the determination of how many units were
urgently needed was a projection which took into account several different
factors. Tr. at 20-22, 28. The item manager explained that the urgency
quantity basically was calculated by adding the existing back orders and the
additional orders that the Army anticipated it would receive before GE would
begin delivering under the delivery order, and subtracting from that total
the number of units that were in stock and which were due from McGregor
under its two contracts over the same period. Tr. at 16-31, 36-37. Using
this methodology, the item manager calculated that by the time GE would
begin making deliveries under delivery order BS72, the Army would be in a
"negative asset posture" equal to 273 units, even after taking into
consideration McGregor's scheduled deliveries under its contracts.
Tr. 19-20. Based on the record, we have no basis for questioning the
agency's method of determining the quantity or the quantity itself that was
urgently needed.

Regarding the challenge to the urgency of the agency's requirements, we have
no basis to question the urgency determination. As described above, the
record reflects that, as of the time of the sole-source award to GE, a
number of helicopters could not be used to perform their missions because
they did not have working deswirl ducts; a very large number of deswirl
ducts had already been requisitioned and were back-ordered; and the
grounding of helicopters because of the need for working deswirl ducts would
compromise the missions of the Army, Customs, and DEA. Moreover, the record
shows that the agency's urgent need for this item was caused in large part
because, even though McGregor had been awarded its first contract more than
3 years earlier, McGregor still had not delivered any usable deswirl ducts
to the Army. Contracting Officer's Statement at  11; Tr. 68-69.

The decision not to solicit McGregor was reasonable in the circumstances. We
recognize that McGregor's inability to provide suitable deswirl ducts was
caused in part by deficiencies in the TDP that the Army supplied to the
firm--in, particular the failure to include revision K to the GE drawing.
However, an Army engineer testified that the drawing was GE's and, since the
Army did not have a data contract with GE,

GE was not contractually obligated to supply the Army with the latest
revisions. Tr. 84. The Army also testified that it did not learn that there
was a revision K to the GE drawing until early in 1999, when the Navy
notified the Army's engineers that the deswirl ducts that had been
manufactured by McGregor were breaking apart and shooting out of the
helicopters in the exhaust. Tr. 137-41. In addition, many other delays (some
of which are discussed above) occurred under McGregor's first contract (for
example, the fire at the supplier's plant) that also contributed to the
agency's not receiving any usable deswirl ducts from the firm.

McGregor argues that virtually all of the performance delays under its
contracts were either excusable delays or were primarily attributable to
dilatory responses by the Army to McGregor's requests for clarifications and
deviations or other unforeseen events. However, whether the many delays
experienced by McGregor were excusable or not is a matter of contract
administration and is not relevant to our resolution of the protest. See
Equa Indus., Inc., supra, at 5-7. What is relevant is the fact that there
were many delays over a long period of time under the contracts with
McGregor; that McGregor had not delivered a single usable deswirl duct to
the Army at the time the decision was made to procure these critically
needed parts from GE; and that the most recent, revised delivery schedule
would only require McGregor to begin delivering its first 15 units at the
end of June 2000. Contracting Officer's Statement at  11,Tr. 26-27, 62-63.
Without attributing fault for the numerous delays to either party, it is
clear from the record that the reason that the parts were urgently needed
was because of the inability of the agency to obtain usable deswirl ducts
from McGregor. [9] In these circumstances, the Army reasonably restricted
the

procurement to GE--the only approved source that had successfully produced
usable deswirl ducts to the most recent drawing revisions in the past and
the only firm that the Army reasonably believed could deliver sufficient
quantities of usable deswirl

ducts within the required timeframe--while continuing to work with McGregor
in order to have it produce usable deswirl ducts under its outstanding
contracts. [10]

The protest is denied.

Robert P. Murphy
General Counsel

Notes

1. The delivery order (No. BS72) was issued against a basic ordering
agreement between GE and the Air Force.

2. The transcript citations in this decision refer to the transcript of the
hearing conducted by our Office in connection with this protest.

3. In January 2000, the Army discovered that yet another revision had to be
incorporated into the deswirl duct TDP. Contracting Officer's Statement
at 10. The Army explained during the hearing that this revision affected
identification of the part but did not affect form, fit, or function. Tr.
at 129.

4. According to the Army, "brazing" is a method of joining two pieces of
metal using heat and a third piece of metal; it is similar to soldering.
Tr. at 121-22.

5. Contract modifications formally resolving these and other issues were
issued on both of McGregor's contracts in May 2000. Contracting Officer's
Statement at 10; Tr. 63. The revised delivery schedule required McGregor to
begin making deliveries anew on June 30, 2000, when 15 units were to be
delivered. Agency Report, Tab 79, Contract Modification No. P00008, at 2.

6. On February 3, Sikorsky informed the Army that it would not compete for
the emergency buy. Contracting Officer's Statement at 15.

7. As used here, "not mission capable status" means that the systems and
equipment are not capable of performing any of their assigned missions due
to a supply shortage. Contracting Officer's Statement at 11 n.9.

8. McGregor asserts that the Army's failure to conduct a competitive
procurement and solicit an offer from it was inconsistent with its
understanding at the time it withdrew its prior protest (reference No.
B-281210), and McGregor requests its prior protest be reinstated. Protest
at 1-3, 8. When McGregor withdrew the prior protest, McGregor stated that
the Army agreed to award McGregor a contract for the same number of deswirl
ducts as had been awarded to GE (i.e., 100 units) under the protested
contract and that the withdrawal was "subject to reinstatement should the
Army not consummate the planned award." The withdrawal letter did not
mention any agreement under which the Army would immediately issue a
competitive solicitation for deswirl ducts. Letter from McGregor to GAO 1
(Nov. 6, 1998). As noted above, the Army awarded McGregor a contract for 100
deswirl ducts on February 18, 1999. Agency Report, Tab 59, McGregor Contract
No. 0030. In any event, the record shows that the Army issued a competitive
solicitation for 254 deswirl ducts April 26, 2000, and provided McGregor
with a copy of that solicitation. Agency Report, Tab 110, Contract
Specialist Memorandum for Record 1 (June 5, 2000); Solicitation No.
DAAH23-00-R-0145 amend. 1, at 1, 3.

9. From the record, we think it is fair to say that both McGregor and the
Army contributed to the delays in obtaining performance from McGregor and
that also, in some cases, such as the subcontractor fire, the delay was
caused by events that were beyond the control of both parties; the current
urgent need for the deswirl ducts did not result from lack of advance
planning.

10. In its comments on the agency's protest report, McGregor raised a
supplemental protest issue--i.e., that the Army's decision to exclude
McGregor from competing for the purchase of the urgent quantity amounted to
a determination of McGregor's nonresponsibility that should have been
referred to the Small Business Administration for a certificate of
competency--which we dismissed as untimely on June 23, 2000. McGregor has
asked for reconsideration. As we stated in our dismissal, McGregor knew all
the information that it needed to protest this issue at the time it filed
its initial protest and, therefore, the issue was properly dismissed. In any
event, we have held that, where a contracting agency decides to satisfy an
urgent requirement by limiting competition to firms it believes can perform
satisfactorily, and thereby excludes a small business concern from the
competition, the agency need not refer the decision to exclude the small
business to the SBA. See DOD Contracts, Inc., B-250603.2, Mar. 3, 1993, 93-1
CPD para. 195 at 4. In light of our decision here that the agency had a
reasonable basis for its decision to sole source this requirement, no
referral to the SBA was required.