Commercial Energies, Inc. No. 3403 (January 17, 1991) Docket No. SIC-90-12-10-153 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. 20416 SIC APPEAL OF: ) ) Commercial Energies, Inc. ) ) Appellant ) Docket No.SIC-90-12-10-153 ) Solicitation No. ) DLA600-91-R-0016 ) Defense Fuel Supply Center ) Cameron Station ) Alexandria, Virginia ) DIGEST A firm that does not submit an offer on a solicitation because it cannot comply with the Walsh-Healey Act requirements contained therein, does not have standing to appeal the Standard Industrial classification code assigned by the Contracting Officer. DECISION January 17, 1991 WHITE, Administrative Judge, Presiding: Jurisdiction This decision is rendered pursuant to the provisions of the Small Business Act of 1958, 15 U.S.C. 631 et sea., and the regulations codified at 13 CFR Part 121. Issue Does Commercial Energies, Inc. have standing to file this appeal? Facts On November 30, 1990, the Defense Fuel Supply Center, Cameron Station, Alexandria, Virginia, issued the above-referenced solicitation (RFP) for "direct supply natural gas." */ The solicitation was a total small business set-aside with a size standard of 500 employees or less under Standard Industrial Classification (SIC) code 1311 (Crude Petroleum and Natural Gas). Proposals were due on January 7, 1991. On December 10, 1990, this Office received a timely Notice of Appeal of the Contracting Officer's SIC code designation from counsel for Commercial Energies, Inc. (Appellant), a small r disadvantaged business (SDB) concern. On December 26, 1990, the record closing date, the Appellant also filed a "Signed Statement of Commercial Energies, Inc." The Appellant contends that the Contracting Officer should have included SIC code 4924 (Natural Gas Distribution), which also has a 500 employees or less size standard. In other words, the Appellant wants the solicitation to be issued under both SIC codes. The Appellant also states that in its two previous solicitations, one issued in May of 1989 and the other in September of 1989, the Contracting Officer designated SIC codes 1311 and 4924 for the first and only SIC code 1311 for the second. It is this deletion of SIC code 4924 from the present solicitation that the Appellant now objects to. By the deletion of SIC code 4924, the Contracting Officer allegedly acted to exclude SDB and 8(a)firms that are marketers of natural gas from consideration. In support of its position, the Appellant cites 55 Federal Register 45342, published on October 29, 1990, and 53 Federal Register 47663, published on November 25, 1988. Both pertain to small business size standards for natural gas distribution. The Appellant also alleges that the statement in a letter from Erline Patrick, SBA's Acting Associate Administrator, Minority Small Business & Capital Ownership Development, that firms under SIC code 4924 "do not have to comply with the definition of regular dealers provided in Walsh Healey Public Contracts Act" is further evidence that the Contracting officer is precluded from excluding this SIC code from this solicitation. The Appellant states that, due to the omission of SIC code 4924, "Commercial Energies is prevented from submitting an offer under this RFP." However, it also states that it is an interested party. We are requested by the Appellant to grant the following: Under this SIC code appeal, Commercial Energies seeks (a) a determination that the Competition in Contracting Act, which requires full and fair participation by all available firms to the widest extent feasible, is applicable to this procurement, and (b) confirmation that the SBA determination, reflected at 55 FR 45342, (October 29, 1990) and 53 FR 47663 (November 25, 1988), regarding SDB "marketers" of natural gas to the Federal Government controls procurement actions involving small business firms, especially as here under a small business set-aside, and (c) as a result, the contracting officer errored [sic] in excluding SIC code 4924 from the solicitation to acquire both the product, natural gas, and the transportation of the product. We are also asked by the Appellant to: set the matter for appropriate proceedings, by telephone or in person, necessary to create a record and issue a decision that (i) the failure to include SIC code 4924 in a solicitation for the acquisition of natural gas by DFSC or other federal contracting activity is improper, and (ii) the RFP and all future solicitations for the acquisition of direct supply natural gas, unless otherwise determined by SBA, must include SIC code 4924. The Statement of Work (SOW) for this solicitation states that: (a) The United States Government is seeking alternate sources of natural gas for six (6) Department of Defense (DoD) installations and/or Federal Civilian Agencies located in Texas, Louisiana, Oklahoma, New Mexico & Arkansas as specified in the schedule. (b) The purpose of this procurement is to reduce annual purchased natural gas costs for the Government by purchasing direct supply natural gas supplies. Direct supply natural gas is defined as natural gas generally purchased on a competitive basis directly from producers or other sources as a commodity. This procurement is part of the new mission assigned to the Defense Fuel Supply Center (DFSC); DFSC's primary goal of centralized acquisition of direct supply natural gas is to provide a reliable source of gas at the lowest cost to Government agencies and installations. (c) Notwithstanding the Government's desire to secure lower cost natural gas, this procurement is being conducted in the context of important national defense and Federal civilian agency functions performed by these DoD installations and Federal civilian agencies. Energy reliability resulting from a secure and reliable source of supply is critical to mission accomplishment. (d) The Contractor shall furnish all labor, tools, requipment, and incidentals to supply and deliver direct supply natural gas to the Local Distribution Company (LDC) Citygates and/or pipeline connection points stated in Section B of the Schedule.. Attached to the solicitation is DD Form 1707, Information to Offerors or Quoters, which states that: d. In accordance with the statutory requirements of the Walsh-Healey Public Contracts Act, the contract(s)entered into as a result of this solicitation shall be with Manufacturers/producers or regular dealers in the Natural Gas Industry. In accordance with 41 CFR Section 50- 201.101(a)(2), a regular dealer is a person who owns, operates, or maintains a store, warehouse, or other establishment in which the materials, supplies, articles, or equipment of the general character described by the specifications and required under the contract are bought, kept in stock, and sold to the public in the usual course of business. This Office received a response to the appeal from the ontracting Officer on December 26, 1990. The Contracting Officer contends that the Appellant lacks standing to file this appeal as it has not been adversely affected by the designated SIC code. This contention is based on the following: CEI cannot establish that it has been adversely impacted by the Contracting Officer's choice of SIC code for the solicitation at issue here because the size standard for the SIC code designated by the Contracting Officer and the size standard for the SIC code recommended by CEI are the same. No matter which SIC code is determined to be applicable to the solicitation, CEI's right to submit an offer is unimpaired.. Apparently in an attempt to demonstrate some negative impact from the Contracting Officer's SIC code determination-, CEI suggests that "Without [SIC code 4924] small disadvantaged firms will be eliminated from participation...." (CEI Notice of SIC code Appeal dated 10 December 1990). This is manifestly untrue since the size standards for SIC codes 4924 and 1311 are the same.... CEI has indicated that it believes the Contracting Officer's choice of SIC code may be relevant in some fashion to the applicability of the Walsh-Healey Public Contracts Act (Walsh-Healey Act) to the solicitation. Administration of the Walsh-Healey Act is a matter within the exclusive jurisdiction of the Department of Labor. It is not a matter over which OHA has cognizance. Size Appeal of Columbia Surgical Instrument Corp., No. 2009 (1984). The Contracting Officer also submits that the appeal should be denied on the merits. She states that: Prior to 1978, the natural gas industry was controlled by Federal, state, and/or local law. Natural gas was provided as a public utility service. Gas consumers, such as Federal Government installations, purchased natural gas from local utility companies, known as "local distribution companies" (LDCs), under provisions of utility services contracts. The LDCs, in turn, purchased the natural gas from interstate pipeline companies. The interstate pipeline companies purchased gas under a regulated price structure from gas producers at the wellhead. The Contracting Officer continues with a history of natural gas deregulation from 1978 to the present. She then submits that: To capitalize on the savings that could accrue from procuring deregulated, open market gas, the Assistant Secretary of Defense for Production and Logistics, by Memorandum dated 21 September 1989, assigned the centralized responsibility for the procurement of direct supply natural gas to the Defense Logistics Agency (DLA). The assignment was made as a result of the recommendation of a study conducted by the Defense Acquisition Board which found that the Department of Defense could achieve monetary savings by competitively procuring natural gas directly from suppliers rather than from utility companies. To implement this initiative, the Defense Fuel Supply Center (DFSC), a supply center under the cognizance of DLA, issued its first solicitation for direct supply natural gas, DLA600- 90-R-0126, on 25 May 1990. The solicitation included two SIC codes: SIC codes 1311 and 4924. DFSC issued subsequent natural gas solicitations on 20 August 1990 (DLA600-90-0151) and 30 November 1990 (DLA600-91- R-0016). These solicitations included only one SIC code, SIC code 1311. Under each of its natural gas solicitations, DFSC sought to purchase gas supplies to be delivered by producers and regular dealers via interstate pipeline to the "LDC citygate." The "citygate" is the connection point between the interstate pipeline company and the LDC. Separate utility services (non-DFSC) contracts with the LDC cover transportation of gas from the citygate to the using activity. Since natural gas was a new procurement program, the Contracting Officer wrote to SBA's Size Standards Staff on July 12, 1990, concerning the appropriate SIC code designation. On August 21, 1990, Gary M. Jackson (Jackson), Director, SBA Size Standards Staff, responded stating, in part, that: Under this rule [13 CFR Part 121.902(b)] it appears that SIC code 1311, since it accounts for most of the cost, should be applied to these procurements. The other code, SIC code 4924, mentioned in your letter, does not appear to me to be relevant since it is entitled "Natural Gas Distribution" and covers the operations of local gas companies (LDC's in your letter) after receiving gas at the city gate.... Jackson also pointed out that his opinion was only advisory, as this Office had final Agency jurisdiction. The Contracting Officer then states that: DFSC had reached conclusions similar to Mr. Jackson's prior to issuing its second solicitation and agrees with Mr. Jackson's analysis. As Mr. Jackson observed, DFSC is primarily purchasing natural gas as a commodity. As a subsidiary element DFSC is purchasing transportation from the wellhead to the citygate. Natural gas constitutes in excess of 2/3 of the value of the procurement, while the transportation element accounts for less than 1/3. The Contracting Officer also wrote to the Department of Labor (DOL), the agency responsible for administering the Walsh-Healey Act, on July 2, 1990, asking if the acquisition of deregulated natural gas was the purchase of a public utility service and, therefore, exempt from the Walsh-Healey Act, or if it was purchasing a commodity which is not exempt. On July 24, 1990, the DOL responded with the following: This is in reply to your letter requesting a determination as to the applicability of the WalshHealey Public Contracts Act (PCA) to competitive procurements for natural gas. As you know, PCA applies to Government contracts in excess of $10,000 for the manufacture or furnishing of materials, supplies, articles, or equipment. Pursuant to 41 CFR 50- 201.603, however, PCA does not apply to contracts for public utility services including electric light and power, water, steam, and gas.. Based on the information provided in your letter, the contracts at issue involve the "acquisition of deregulated natural gas." These purchases will be made from producers of or regular dealers in natural gas and not from regulated public utility sources. Under these circumstances, we concur in your conclusion that because the natural gas suppliers are not "otherwise controlled," the public utility services exemption does not apply, and these contracts would properly be subject to PCA. A copy of the Comptroller General Decision, No. B-240148, dated October 19, 1990, was also submitted to this Office by the Contracting Officer. This decision was rendered as a result of a protest filed by this Appellant pertaining to the solicitation for natural gas issued on May 25, 1990, Solicitation No. DLA600 90-R-0126. This solicitation, as previously noted, included both SIC codes 1311 and 4924. The issues in the case were whether the Walsh-Healey Act applied to this procurement and whether the solicitation should have been set aside, apparently exclusively, for small disadvantaged business (SDB) concerns. It appears from this case that the offerors on this solicitation were also informed that the supply of natural gas was considered the supply of a commodity and that the Walsh-Healey Act would apply. The Appellant protested, arguing that the Contracting Officer was required to set aside the solicitation for SDB's since there was a reasonable expectation that offers could be obtained from at least two or more responsible SDB concerns. The procuring activity stated that it had conducted an extensive market survey and found that there were no SDB concerns "which would be eligible for award as manufacturers (producers) of or regular dealers in natural gas as required by the Walsh-Healey Act." This Appellant also argued that the Comptroller General should accord no weight to DOL's interpretation as it had no authority to determine the applicability of the Walsh-healey Act where the eligibility of small business concerns is involved. It further contends that SBA has determined that SDB's and other small business concerns that supply natural gas are not subject to the Walsh-Healey Act. The Comptroller General's response was as follows: The Secretary of Labor has primary responsibility for the administration of the Walsh-Healey Act. See 41 U.S.C. 38; Westbyrd. Inc., 69 Comp. Gen. 238 (1990), 90-1 CPD 159. The Secretary has delegated the authority to promulgate regulations and issue official rulings and interpretations to the Administrator of Labor's Wage and Hour Division. 41 C.F.R. 50-206.2. SBA, on the other hand, has the more limited authority to determine the eligibility of small business concerns as manufacturers or regular dealers under the WalshHealey Act. See 15 U.S.C. 637(b)(7)(B) (1988); FAR 22.608 (FAC 84-56). CEI has not challenged DLA's statement that CEI is not a regular dealer or manufacturer. Thus, CEI's eligibility under the Walsh-Healey Act is not in issue but rather the issue is the applicability of that Act to this procurement. Accordingly, Labor's views, not SBA2 8, are pertinent to this case. In addition, this decision stated that "we do not understand why the RFP referenced the SIC code for the distribution of gas," as "the RFP did not provide for the distribution of gas to government installations." It went on to note that the RFP was principally for the supply of natural gas as a commodity, not to obtain services. This decision also noted and concurred in DOL's view that the applicability of the Walsh-Healey Act depended on the nature of the provider and not the services rendered. Finally, the key findings in this decision state that: 1. Solicitation for natural gas from wellhead producers and its transmission via the interstate pipeline to local distributing companies reasonably are found not to be a contract for utility services within the meaning of the Department of Labor's regulatory exemption from the application of the Walsh-Healey Act and thus the Walsh- Healey Act is applicable to the procurement. 2. Procuring agency properly did not set-aside procurement for small disadvantaged business (SDB) concerns where the agency determined that there was no expectation of receiving offers from two or more SDBs which would be eligible for award as manufacturers/producers or regular dealers as required by the Walsh-Healey Act. On January 7, 1990, after the record closed, the Appellant also submitted a "Motion And Request To Respond To Statement Of DFSC January 4, 1991" and "Reply To The DFSC December 26, Statement." In addition, we received a "Motion And Request To Respond To The Statement Of Commercial Energies, Inc." and a "Supplementary Statement By The Defense Fuel Supply Center" from the Contracting Officer on January 16, 1991. Discussion To avoid delay in disposing of this appeal, the Appellant's filings and the Contracting Officer's filings after the closing of the record will be disregarded. See 13 CFR 121.1712(e) and 121.1708. Further, all matters pertaining to this appeal can be resolved from the written record. Accordingly, we do not find that there is a genuine dispute as to any material fact of decisional significance which cannot be resolved except by confrontation of witnesses. Therefore, pursuant to 13 CFR 121.1714(a) and (b), the Appellant's request for a telephone conference or an oral hearing is denied. In Size Appeal of Commercial Energies Inc., No. 3397 (January 7, 1991), we held that this same Appellant had no standing to file a size protest pertaining to solicitation No. DLA600-90-R-0126. This solicitation, as previously noted, was for the direct supply of natural gas and included both SIC codes 1311 and 4924. In addition, it, too, contained the Walsh-Healey Act requirement that contracts entered into as a result of this solicitation must be with manufacturers/producers or regular dealers in the natural gas industry. The Appellant's lack of standing was based on the fact that it did not submit an offer on this solicitation, apparently because it did not meet these Walsh-Healey Act requirements. This SIC code appeal also pertains to a solicitation for the direct supply of natural gas, issued under SIC code 1311, and also contains the Walsh-Healey Act requirement. Further, the Appellant did not submit an offer on this solicitation, apparently for the same reason that it did not do so with respect to the solicitation at issue in its prior appeal. We also note that both the DOL and the Comptroller General have issued decisions which state that the Walsh-Healey Act applies to solicitations issued for direct supply natural gas. Accordingly, since the Appellant did not submit an offer on this solicitation because it cannot comply with the Walsh-Healey Act requirement that it must be a manufacturer/producer or regular dealer in the natural gas industry, we find that the Appellant also does not have standing, pursuant to 13 CFR 121.1703(b), to file this SIC code appeal. Conclusion This appeal is DISMISSED for lack of standing. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720(a), (b), and (c). _____________________________ Elwin H. White (Presiding) Administrative Judge ______________________________ Michael S. Cole (Concurring) Administrative Judge ______________________________ G. Stephen Wright (Concurring) Administrative Judge _____________ */ Solicitations issued on or after January 1, 1990 are regulated by 13 CFR Part 121 published in 54 Fderal Register 52634, et seq., on December 21, 1989, effective January 1, 1990, and any amendments in effect on or before the solicitation date.