oversight

Questionable Contract Actions Relating to Purchase of AN/PRC-25 Radio Sets from Bristol Electronics, Inc.

Published by the Government Accountability Office on 1971-02-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                       BY THE COMPTROLLER GENERAL
                                                       OF THE UNITED STATES


                                                                                         FEB.12,1971
                          COMPTROLLER     GENERAL        OF      THE   UNITED     STATES
                                        WASHINGTON.       D.C.     2O!J448
                          .C.    r-




          B- 156971




      k   Dear   Mr.   Gross:

                   The accompanying      report    presents     the results  of our
          review    made at your request        of questionable     contract   actions
          relating    to the purchase    of AN/PRC-25        radio sets from
          Bristol    Electronics,   Inc.

                   This review   was made pursuant      to the Budget and
          Accounting      Act, 1921 (31 U.S.C. 53); the Accounting       and
          Auditing     Act of 1950 (31 U.S.C. 67); and the authority       of
          the Comptroller      General   to examine   contractors’    records,
          as set forth in contract     clauses prescribed      by the United
          States Code (10 U.S.C. 2313 (b)).

                  We plan to make no further        distribution      of this report
          unless copies are specifically        requested,       and then we will
          make distribution      only after your agreement          has been ob-
          tained or public announcement          has been made by you con-
          cerning   the contents     of the report.




                                                      Comptroller               General
                                                      of the United             States

          The Honorable   H. R. Gross
PJI       House of Representatives
  R
COMPTROLLERGENERAL'SREPORT.-                            QUESTIONABLE CONTRACT ACTIONS RELATING
TO THE HONORABLE
               H. R. GROSS                              TO PURCHASE OF AN/PRC-25 RADIO SETS
HOUSEOF REPRESENTATIVES                                 FROM BRISTOL ELECTRONICS, INC.
                                                        Department of the Army
                                                        Small Business Administration  B-156971


DIGEST
------

WHYTHE REVIEWWASM4DE
     The General Accounting         Office      (GAO), at the request of Congress-
R ,  man H. R. Gross, reviewed the Army Electronics                           Command'smbs,e.sf
     AN/PRC-25 radios ~.~u and"A~w~.~~~.
                                RT-5a5       receiver-tr.ansmiSt~r~~~a~~aj~~~~ornponent
                                                  )I_-..,q-F.,.: .-,_
                                       iw..-zx~,~~%~<.~            ox1...b-;n.w*.d%,ti.
                                                                                   -L
   , of the-~ra?di~:?VomBns.tol
                       * .-_ I.-,--.=aw-5  Electronics,
                                        .zT~~c%=
                                              J-=~~""h~~-~~~       Inc       New  Bedford  Massachu-
                                                                iAL,~~~~~~*.~.~~~~.~~~~~?~,~~.
                                                                                             ~~~,
                                                                                                ir -,~'.1i"
     setts.




I
       GAO was requested to determine       why the-small   Business Administration
       issued a Certificate      of Competency to Bristol    a month after        the Army
       decided Bristol     could not perform the contract.       GAO was also asked to
       determine  the Army's basis for negotiating        a $1.4-million      claim settle-
       ment with Bristol     and for awarding another contract         to Bristol    in July

Ii
 i_
    ' 1969 for additional
     I lems.
                                radios in view of Bristol's     prior performance       prob-



FINDINGS AND CONCLUSIONS
       CertCficate      of Competency

      A portion
          _. .      of the total     requirement    for radios to be purchased was- set
      aside by the Army for award to a firm in an area with high unemployment.
      Bristol    was one of the bidders for the set-aside           portion.    The Army
      found that Bristol        lacked the necessary technical        ability,  facilities,
      and financial      resources     and had unsatisfactory     performance   on prior con-
      tracts    and concluded that Bristol        could not ensure contract       performance.
      In July 1965--l month later--the           Small Business Administration          disagreed
      and issued a Certificate          of Competency to Bristol.        In August the Army
      awarded a contract        to Bristol    to produce the radios at a cost of
      $4.3 million.       This amount was later        increased  to $5.1 million       as a re-
      sult of changes.        (See pp. 5 to 13.)

      The Small Business Administration        refused to furnish       records to GAO
      which would show the basis for certifying           Bristol's    competence.     It
      claimed that this information     was privileged         as well as within    the
      scope of 18 U.S.C. 1905--the     statute     which subjects      Government officials
      to penalties  if they disclose    certain     confidential      business information.
      GAO did determine,   however, that the Small Business Administration                had

 Tear Sheet


                                                                             ., FEB.12,197i
                                                  1
reviewed the same aspects of the contractor's              operations     as had the Army.
(See p. 11 and apps. III through VIII.)

The adverse factors        cited in the Army's preaward survey could have con-
tributed    to Bristol's      difficulties      in performing      the contract.    Bristol
failed   to make scheduled deliveries,            suffered    serious financial     prob-
lems, and had an apparent shortage of personnel with engineering                     talent
and technical     abilitv.        (See oo. 24 and '25.)       The contractor     was ini-
tially   required    to dkliver        8,554 radio sets-by September 15, 1967, but
had delivered     only 92 by September 30, 1967. Actual deliveries                  as of
October 31, 1969, totaled            8,198.

The claim submitted      by Bristol
Bristol  attributed     its difficulties     to actions of the Army and said that
they resulted     in Bristol's     incurring   substantial additional  costs.
Bristol  filed    a claim to recover these costs plus profit.         (See p. 20.)

y;i;tol  contended that other         factors  contributed      to its delivery     prob-
        One of these was that         Government-furnished        gauges used in test-
ing ihe radio set components          (modules) were unreliable          and even if the
modules passed the gauge tests           they still    required    further   tuning to
operate efficiently.    (See p.         28.)

The Army acknowledged certain          inadequacies   in the gauges and thought it
conceivable      that the Government could lose a larger          sum (Bristol    origi-
nally claimed $3 million)       if the claim were carried         to the Armed Ser-
vices Board of Contract      Appeals.        For this reason, and because Bristol's
adjusted    price was comparable to prices paid other contractors              for the
same radio sets, the Army elected to settle             the claim.     In April 1969,
the Army agreed to pay Bristol           $1.4 million   in addition    to the contract
price at that time--$5.1      million.        (See pp. 32, 33, and 36.)

The amount for which the claim was settled         is questionable      since reviews
by the Defense Contract      Audit Agency auditors    and the Defense Contract
Administration     Region price analyst could establish       no direct     relation-
ship between the amounts claimed s.nd the additiona'l         costs arising        from
the factors    used as the basis for the claim,       (See pp. 33 and 34.)

All producers of the radio sets except Bristol             have been required      to
meet gauge tests to ensure interchangeability            of all modules, regardless
of manufacturing     source.     The Army withdrew    the gauges after     Bristol's
complaints    and waived the test requirement       to preclude Bristol       from at-
tributing   any further     delays to the gauges.       So far as GAO could deter-
mine, the Government gauges posed no similar            problems for other produc-
ers of the radio sets.         (See pp. 29 and 30.)

The Army allowed an increased    price for 6,032 uncompleted units as part
of the settlement.     This is questionable     since the first   of these units
was not to be delivered    until 9 months after      the gauge requirements
were withdrawn.    Further GAO believes     that an allowance should not have


                                      2
           been made in the claim settlement        for increased     costs alleged to have
           been incurred      as a result of inspection     requirements,   since both the
           invitation     for bids and the contract     prova'ded for their    imposition at
           the discretion      of the Government.

           Further,   GAO sees no reason for increasing   the profit  rate from 5 to
           7 percent on the total    costs claimed by the contractor   when a 5-percent
           factor   was included  in its original  bid.  (See p. 37.)

          Additional   award

          Additional    orders for a total     of 4,373 radio sets were placed with Bris-
          tol,   low bidder on the solicitation,        in July and August 1969.     The Army
          decided that the contractor       was capable of meeting the contract       delivery
          schedule and bid price.      GAO believes that Bristol's       performance   on the
          prior contract     and its uncertain    financial    position cast serious doubt
          on the Army's conclusion.        (See pp. 39 to 43.)

          The Department of Defense and Bristol    have provided         GAO with   written
          comments on the above report  findings.    (See apps.         IX and XI.)      These
          comments have been considered   in the report.


    RECOMMENDATIONS
                 OR SUGGESTIONS
          GAO recommends that the Secretary      of    Defense take steps to discourage
          settlement    of claims based on total      cost and require   contractors     to
          furnish    documentary evidence showing      the additional  costs incurred       be-
          cause of the factors    which form the      basis of the contractors'      claims.
           (See p. 38.)




I
I   Tear Sheet
I


                                                 3
                          Contents
                                                          Page

DIGEST                                                      1

CHAPTER

  1       INTRODUCTION                                      5

  2       REVIEW OF ISSUANCE OF CERTIFICATE OF
          COMPETENCY                                       PO
              Army's reasons for proposing to re-
                 ject Bristol's    bid and Small Busi-
                 ness Administration's    basis for
                  issuing a Certificate   of Competency    10
              Army's basis for accepting Certificate
                 of Competency issued by Small Busi-
                 ness Administration                       14
              Attempts to obtain additional     infor-
                 mation from Small Business Admin-
                  istration                                15
              Agency and contractor     comments and
                 GAO evaluation                            16
  3       BRISTOL'S PERFORMANCE    RECORD                  18
              Contract price increased significantly
                from award price                           18
              Contractor   did not meet delivery
                schedules                                  18
              Factors contributing    to contractor's
                late deliveries                            23
              Contractor   comments and GAO evaluation     26

  4       REVIEW OF SETTLEMENTOF BRISTOL'S CLAIM           28
              Bristol's   basis. for claim                 28
              Army's review of Bristol's       claim       28
              Negotiation   of Bristol's    claim          31
              Agency and contractor      comments and
                GAO evaluation                             35
                   Recommendation                          38

  5       EVALUATION OF ADDITIONAL AWARDTO BRISTOL         39
              Army's basis for making the award            39
              Agency and contractor  comments and
                GAO evaluation                             43
   6      SCOPEOF REVIEW                                   46
                                                                                    Page
EXHIBIT

   A              Listing       of persons   having direct        financial
                      interests     in Bristol    Electronics,         Inc.          49

APPENDIX

              I   Letter     dated February            19, 1968, from the
                      Honorable       H. R. Gross, House of Representa-
                      tives,    to the General Accounting               Office       53
         II       Letter     dated October            14, 1968, from the
                      Honorable       H. R. Gross, House of Representa-
                      tives,    tothe      General Accounting           Office       54
       III        Letter     dated October            24, 1968, from the Gen-
                      eral Accounting           Office      to the Small Busi-
                      ness Administration                                           55
         IV       Letter     dated October            29, 1968, from the
                      Small Business          Administration          to the Gen-
                      eral Accounting           Office                              56
             v    Letter     dated November 7, 1968, from the
                     General      Accounting         Office     to the Small
                      Business      Administration                                  57
        VI        Letter     dated November 19, 1968, from the
                      Small Business          Administration         to the
                     General Accounting              Office                         59
    VII           Letter     dated November 29, 1968, from the
                     General Accounting              Office     to the Small
                     Business       Administration                                  60
  VIII            Letter     dated December 31, 1968, from the
                     Small Business          Administration          to the Gen-
                     eral Accounting            Office                              61
        IX        Letter     dated May 19, 1970, from Bristol
                     Electronics,         Inc.,      to the General Account-
                     ing Office                                                     63
             X    Letter     dated June 5, 1970, from the Small
                     Business      Administration            to the General
                     Accounting        Office                                       73_
       XI         Letter     dated June 22, 1970, from the Depart-
                     ment of the Army to the General                    Account-
                     ing Office                                                     75
COMPTROLLERGENERAL'SREPORT                      QUESTIONABLE CONTRACT ACTIONS RELATING
TO THE HONORABLE
               H. R. GROSS                      TO PURCHASE OF AN/PRC-25 RADIO SETS
HOUSEOF REPRESENTATIVES                         FROM BRISTOLELECTRONICS,      INC.
                                                Department of the Army
                                                Small Business Administration     B-156971


D I‘G E S T
a-----

WHYTHE REVIEWWASMADE
     The General Accounting     Office    (GAO), at the request of Congress-
     man H. R. Gross9 reviewed the Army Electronics         Command's purchase of
     AN/PRC-25 radios and RT-505 receiver-transmitters--a        major component
     of the radio--from   Bristol     Electronics,  Inc., New Bedford, Massachu-
     setts.

    GAO was requested     to determine   why the-Small   Business Administration
    issued a Certificate      of Competency to Bristol    a month after        the Army
    decided Bristol     could not perform the contract.       GAO was also asked to
    determine  the Army's basis for negotiating        a $1.4-million      claim settle-
    ment with Bristol     and for awarding another contract         to Bristol    in July
    1969 for additional      radios in view of Bristol's     prior performance       prob-
    lems.


FINDINGS AND CONCLUSIONS
     Certificate   of Competency

    A portion     of the total     requirement    for radios to be purchased was set
    aside by the Army for award to a firm in an area with high unemployment.
    Bristol
     -      .  was one of the bidders for the set-aside           portion.    The Army
    found that Bristol        lacked the necessary technical        ability,  facilities,
    and financial      resources     and had unsatisfactory     performance   on prior       con-
    tracts    and concluded that Bristol        could not ensure contract       performance.
    In July 1965--l month later--the           Small Business Administration          disagreed
    and issued a Certificate          of Competency to Bristol.        In August the Army
    awarded a contract        to Bristol    to produce the radios at a cost of
    $4.3 million.        This amount was later       increased  to $5.1 million       as a re-
    sult of changes.         (See pp. 5 to 13.)

     The Small Business Administration        refused to furnish        records to GAO
     which would show the basis for certifying            Bristol's    competence.     It
     claimed that this information     was privileged          as well as within    the
     scope of 18 U.S.C. 1905--the     statute     which subjects       Government officials
     to penalties   if they disclose   certain      confidential      business information.
     GAO did determine,    however, that the Small Business Administration                had



                                           1
reviewed the same aspects of the contractor's              operations    as had the Army.
(See p. 11 and apps. III through VIII.)

The adverse factors        cited in the Army's preaward survey could have con-
tributed    to Bristol's      difficulties'     in performing     the contract.    Bristol
failed   to make scheduled deliveries,            suffered    serious financial    prob-
lems, and had an apparent shortage              of personnel with engineering       talent
and technical     ability.        (See pp. 24 and 25.)        The contractor    was ini-
tially   required    to deliver        8,554 radio sets by September 15, 1967, but
had delivered     only 92 by September 30, 1967. Actual deliveries                 as of
October 31, 1969, totaled            8,198.

!l%e cZ.aim su.bmitted   by Bristol

Bristol  attributed     its difficulties     to actions    of the Army and said that
they resulted     in Bristol's     incurring   substantial   additional  costs.
Bristol  filed    a claim to recover these costs plus profit.           (See p0 20.)

Bristol    contended that other factors  contributed      to its delivery     prob-
lems.     One of these was that Government-furnished        gauges used in test-
ing the    radio set components (modules) were unreliable          and even if the
modules    passed the gauge tests they still     required    further   tuning to
operate    efficiently.   (See p0 28.)

The Army acknowledged certain         inadequacies    in the gauges and thought it
conceivable     that the Government could lose a larger           sum (Bristol    origi-
nally claimed $3 million)      if the claim were carried          to the Armed Ser-
vices Board of Contract     Appeals.       For this reasons and because Bristol's
adjusted    price was comparable to prices paid other contractors              for the
same radio sets, the Army elected          to settle    the claim.     In April 1969,
the Army agreed to pay Bristol         $1.4 million     in addition    to the contract
price at that time--$5.1     million.        (See pp. 32, 33, and 36.)

The amount for which the claim was settled         is questionable      since reviews
by the Defense Contract      Audit Agency auditors    and the Defense Contract
Administration     Region price analyst  could establish      no direct     re'lation-
ship between the amounts claimed and the additional           costs arising        from
the factors    used as the basis for the claim.       (See pp. 33 and 34.)

All producers of the radio sets except Bristol          have been required    to
meet gauge tests to ensure interchangeability         of all modules3 regardless
of manufacturing     source. The Army withdrew the gauges after Bristol's
complaints   and waived the test requirement       to preclude Bristol    from at-
tributing   any further    delays to the gauges.     So far as GAO could deter-
mine, the Government gauges posed no similar         problems for other produc-
ers of the radio sets.        (See pp. 29 and 30.)

The Army allowed an increased    price for 6,032 uncompleted units as part
of the settlement.     This is questionable     since the first   of these units
was not to be delivered    until 9 months after      the gauge requirements
were withdrawn.    Further GAO believes     that an allowance should not have


                                      2
    been made in the claim settlement        for increased     costs alleged to have
    been incurred     as a result  of inspection     requirements,   since both the
    invitation     for bids and the contract     provided for their     imposition at
    the discretion     of the Government.

    Further,   GAO sees no reason for increasing   the profit  rate from 5 to
    7 percent on the total    costs claimed by the contractor   when a 5-percent
    factor   was included  in its original  bid.  (See p. 37.)

    Additional      award

    Additional    orders for a total     of 4,373 radio sets were placed with Bris-
    tol,   low bidder on the solicitation,       in July and August 1969.     The Army
    decided that the contractor       was capable of meeting the contract      delivery
    schedule and bid price.      GAO believes that Bristol's      performance   on the
    prior contract     and its uncertain    financial   position cast serious doubt
    on the Army's conclusion.        (See pp. 39 to 43.)

    The Department of Defense and Bristol   have provided         GAO with   written
    comments on the above report findings.    (See apps.          IX and XI.)     These
    comments have been considered  in the report.


RECOMMENDATIONS
             OR SUGGESTIONS
    GAO recommends that the Secretary      of    Defense take steps to discourage
    settlement    of claims based on total      cost and require  contractors     to
    furnish    documentary evidence showing      the additional  costs incurred      be-
    cause of the factors    which form the      basis of the contractors'     claims.
     (See p. 38.)




                                            3
                             CHAPTERI

                           INTRODUCTION

     The General Accounting Office,     at the request of Congress=-
man H. R. Gross (see apps. I and II>, has reviewed the pro-
curement by the Army Electronics      Command of AN/PRC-25 radio
sets and RT-505 receiver-transmitters       from Bristol.     In Au-
gust 1965, Bristol  was awarded a firm fixed-price        contract,
DA-36-039-AMC-07306(E),    for $4,321,810.      Subsequent modifi-
cations increased the total contract       amount to about
$5,104,000.

     The award to Bristol    was made by the Army following        the
issuance by the Small Business Administration         of a Certifi-
cate of Competency.      Concerning this action by the Small
Business Administration,     we were asked by Congressman Gross
to determine:
      1. Whether the certificate      had been issued after the
         Army had determined,     on the basis of the same facts,
         that Bristol    was incapable of performance.        (See
         p. 10.1
                                          .
      2. The Small Business     Administration's   explanation      for
         its reaching a conclusion       different from the Army's.
         (See app. VIII.>
      3. The identity    of the  Small Business Administration         in-
         dividuals    who made the review and arrived at the de-
         cision to issue the     certificate.      (See p. 15.)
      4. Whether minutes of    its meetings on the issuance of
         the certificate    to Bristol      were available    and
         whether minutes of    such meetings were normally main-
         tained and available     for examination       by the General
         Accounting Office.      (See p. 15.)
      5. The Army's reasons for canceling         a meeting scheduled
         with the Small Business Administration            to discuss
         the certificate    and whether anyone communicated with
         the Assistant   Secretary of the Army, Installations
         and Logistics,   just prior to the cancellation.
         (See pp. 14 and 15.)
      6. The Army's basis for accepting the certificate.
          (See pp. 14 and 15.1

                                    5
    With respect     to developments  occurring  after                the    award
was made to Bristol,     we were asked to determine:

       1. Whether Bristol's     difficulties      in performing     this
          contract  were attributable        to the negative     factors
          disclosed  by the Army's preaward          survey.    (See
          p* 25.1

       2.     The Army's reasons    for waiving           the electrical        in-
            terchangeability    test required            by Bristol's       contract.
            (See ppe 29 and 30).

       3. The Army's basis for negotiating   a $1.4-million
          settlement   on Bristol's appeal to the Armed Ser-
          vices   Board of Contract Appeals.  (See pp. 32 to
          35.1

       4. The Army's      justification            for ordering     additional
          radio    sets   from Bristol           in July 1969 in view of the
          contractor's       previous         performance     record.       (See
          p. 40.1

      We were also asked         to furnish       a listing     of persons
having   direct   financial        interests      in Bristol.      This list       is
included    as exhibit      A.
      The AN/PRC-25 is a lightweight             frequency-modulated      radio
set which is transistorized             except for one vacuum tube in the
frequency      power output   stage of the receiver-transmitter.
It is carried       by the serviceman.         Its communications      range
is 3 to 5 miles.         (See illustration,         p* 7.)    The RT-505 is
a receiver-transmitter        which is a major component of the
AN/PRC-25.

      In response     to an invitation       for bids issued on
March 27, 1965, the Army received              14 bids and awarded the
non-set-aside      portion   of its requirement         to the lowest bid-
der, Model Engineering         and Manufacturing        Corporation       (pres-
ently    MEMCOR,   Inc.),   Huntington,      Indiana,     a  division     of  LTV
Electrosystems,       Inc.,  at unit prices        of $505 for the
AN/PRC-25 and $500 for the RT-505.                The unit prices       of these
radios    were subsequently       increased     approximately        $90 each in
response      to MEMCOR's petition       for monetary       relief    under

                                          6
7
provisions      of Public   Law 85-804.l     MEMCOR initially               ehcoun-
tered difficulties        in producing   acceptable   units;              however,
these difficulties        were finally   resolved.

        The second,      third,     and fourth      low bidders       were small
business     concerns      situated      in areas of high unemployment.
This qualified        them for consideration            for the set-aside
portion    of the award.          The bids submitted          by these concerns
were rejected       by the Army's Contractor              Evaluation      Board pri-
marily    because of deficiencies              in their    capacity     and credit.
In its evaluation          summary the Board stated            that Bristol
could not be considered             technically       and financially       capable
of ensuring      satisfactory         performance.

       Under the provisions           of the Small Business       Act, these
concerns    could,     upon such rejection,          apply to the Small
Business    Administration         for a Certificate       of Competency--a
conclusive    certification          by the Small Business       Administration
that a firm is competent,             as to capacity      and credit--to      carry
out the proposed         contract.

         The second low bidder,    Ecco Electronic      Components Cor-
poration,     Mount Vernon,    New York, indicated      that it would
apply for a certificate;        however,    it subsequently    withdrew
its application.       The third   low bidder,     Aerospace   Support
Equipment,     Inc.,  Van Nuys, California,      did not apply for a
certificate.

         The fourth     low bidder,      Bristol,       applied   for a certifi-
cate;     on July 28,      1965,    the   Small     Business    Administration
certified      that Bristol       was competent,         as to capacity        and
credit,     to perform      the proposed        procurement.       Bristol      had
hid $543 and $495 for each unit                 of the AN/PRC-25 and RT-505,
respectively,       but subsequently          agreed to lower its price             for
the AN/PRC-25 to $505, to conform to that of the low bidder
on the non-set-aside           portion.       The Army then awarded a firm
fixed-price       contract     to Bristol       on August 26, 1965, for
7,287 units       of the AN/PRC-25 and for 1,267 units                  of the
RT-505 at a total          contract     price     of $4,321,810.



Lrhis    law provides      that, upon application             by a contractor
 and if necessary        to the national    defense,           relief  be granted
 without    consideration.
                                           8
       Due to various technical     changes and problems experi-
enced in the manufacture of the end-item,       including  the
settlement   of a contractor    claim for about $1.4 million    in
April 1969, the unit prices of the AN/PRC-25 and RT-505 were
increased to $760 and $755, respectively,       and the contract's
total value was increased to $6,539,576.        (See p. 18.1

      In July and August 1969, orders for an additional  quan-
tity of 4,373 AN/PRC-25 radio sets were given to Bristol   at
a unit price of $519. These orders increased the total con-
tract price to $8,808,288.

      On the initial   award to Bristol,     two protests  were
filed with our Office.      In one, Bristol    protested  possible
awards to either Ecco or Aerospace.         Because these two con-
cerns had received negative evaluations        by the Army and had
decided not to apply for a Certificate        of Competency, the
basis for Bristol's    protest  ceased to exist.

         In the other, MEMCORprotested           the possible    award to
Bristol,      claiming that Bristol        did not have the technical
ability,     production       facilities,   or financial    resources to
produce the equipment in accordance with the contract                  terms.
MEMCORin its protest             also questioned the Small Business
Administration's          judgment in issuing a certificate         to Bristol
in view of the negative evaluation              by the Army regarding
Bristol's      qualifications.

        On August 23, 1965, after considering      statements ob-
tained from the Small Business Administration          and from the
Army and after reviewing the Small Business Administration's
file,    we rendered a decision on MEMCOR'sprotest         (B-156971).
The decision     states that, under applicable     provisions    of the
law and regulations,      the issuance of a certificate       by the
Small Business Administration       is conclusive   on the contract-
ing officer     with respect to a small business bidder's        capac-
ity and credit to perform the specific         Government contract.
This decision did not include an evaluation         of the basis for
the issuance of the certificate       by the Small Business Admin-
istration.

      The scope of our review         appears on page 46.



                                      9
                                   CHAPTER2

        REVIEW OF ISSUANCE OF CERTIFICATE OF COMPETENCY

ARMY'S REASONSFOR PROPOSINGTO
REJECT BRISTOL'S BID AND
SMALL BUSINESS ADMINISTRATION'S BASIS FOR
ISSUING A CERTIFICATE OF COMPETENCY

      On June 24, 1965, the Boston Regional Office of the
Small Business Administration      learned of the Army's pro-
posed rejection  of Bristol's    bid on the basis that Bristol
did not have the capacity or the credit to perform the pro-
posed contract.   The Small Business Administration,          in
turn, advised the contractor     of its rights under the Small
Business Act to apply for a Certificate        of Competency.    On
June 28, 1965, Bristol    submitted the necessary applications
for a small business determination       and for a certificate.

        Early in July 1965, the Small Business Administration's
Boston Regional Office reviewed Bristol's                  financial      and
productive     capabilities.         This review included a visit              to
the Bristol      facility.      The regional      office     concluded that
Bristol     had available      the necessary organization,             skills,
personnel,     facilities,       equipment, and supplies required               to
meet the quantity,         quality,     and delivery     requirements        of
the proposed contract.            It was the regional         office's      opin-
ion that financial         resources generated from operations                 and
profits    of the business,         together with progress payments
and a line of credit established             with a Boston, Massachu-
setts, bank, would be sufficient             to support contract per-
formance.

        In our review of the Small Business Administration's
Boston Regional Office files pertaining             to Bristol,   and in
our discussions      with its personnel,       we found that the Small
Business Administration         examination had covered both finan-
cial and technical       aspects of Bristol's       operation.    Al-
though the scope of the review performed by the Small Busi-
ness Administration       paralleled    that of the Army review and
dealt with the same points reviewed a month earlier               by the
Army 2   the conclusions    reached   by   the  Small  Business   Admin-
istration    review team were favorable         to Bristol.     These


                                        10
conclusions  were approved by a Certificate  of Competency
Review Committee at the regional  level, which then recom-
mended to the Review Committee at Small Business Administra-
tion headquarters  in Washington, D.C., that a certificate
be issued.

       On July 28, 1965, the Office of the Administrator,
Small Business Administration,          notified     the Army that, pur-
suant to section 8(b)(7)       of the Small Business Administra-
tion Act, Bristol      had been certified        as competent as to ca-
pacity and credit.       We were unable to satisfactorily           eval-
uate the Small Business Administration's              basis for granting
the certificate     because it refused to furnish us with its
complete records relating        to its decision on the basis that
the records contained confidential             business information
within the scope of 18 U.S.C. 1905, This statute                subjects
Government officials       to penalties      if they disclose     such in-
formation.      The records were also said to consist of inter-
nal administrative      procedures and communications which the
Small Business Administration         officials      considered privi-
leged.

      The following   table contains the conclusions     of the
Small Business Administration       and of the Army in their re-
spective preaward surveys.        The table was prepared from in-
formation   furnished  by the Small Business Administration
and from information     contained in the Army's files,    which
we did not independently      evaluate.




                                    11
                         Small -Business
                         -.___       -.-.--     Administration's
                              Reasons
                              .-I__~       for  Issuance      of a
                   Certificate
                   -.----_-----        of    Competency
                                                  __-_____  to   Bristol

1. Bristol  had a satisfactory              record   of completion    of contracts
   obtained    previously   through           the issuance  of Certificates       of
   Competency.            ,




2. Bristol!s  productive          facilities  were adequate    for producing   the
   equipment   required        in accordance    with the terms of the contract
   under consideration           and were readily    available   for that pur-
   pose.
3. An adequate staff,    including     labor,,            technical,       and professional
   manpower, was available       to Bristol.

4. The necessary      materials,    supplies,  and subcontracted                  components
   and services      were available    as needed by Bristol.


5. Bristol's  management was experienced  and capable                        of meeting       all
   management requirements  imposed by the contract.
6. Financing  in the amount needed to perform   a contract                        resulting
   from the invitation    for bids would be made available                        pursuant
   to a signed commitment    by a bank that had previously                        acted in
   the same capacity   for Bristol.
                 Army's Basis for Issuance of Negative
                Preaward Survey on Bristol's Ability   to
                        Perform Proposed Award
1. Unsatisfactory   prior performance on Government contracts    ba-
   cause of delinquencies    in deliveries   of from 1 to 3 months on
   the following   contracts   for components of radio sets.
     Contract                          Item                        Delinquency
   DA-04396(E)      Control,  C-2297/VRC intercommunica-
                    tions set                                         80 days
                    C-2298/VRC                                        30   "
   DA-01880(E)      Control,  C-2297lVRC intercommunica-
                    tions set                                        90    "
   DA-02952(E)      C-2298/VRC intercommunTcations        set       Delinquent
2. Lack of necessary technical  facilities   to perform incoming in-
   spection and to evaluate engineering-type    problems should they
   occur.

3. Lack of adequate     engineering    talent   on hand or available.

4. Inadequate plan for production     with no make-or-buy program,
   quotations,    or established sources for subcontractor   or mate-
   rial supplies.
5. Lack of experience in producing          such equipment   as complex as
   the AN/PRC-25 radio set.
6. Question as to whether Bristol        had sufficient     capital    and/or
   credit to finance an award of this size,             An Army financial
   specialist    analyzed Bristol's    financial    history   for 4 years.
   He then stated for the record that the size and complexity                 of
   the proposed award of over $4,000,000 when related               to the com-
   pany's capital     and prior sales achievements gave rise to con-
   cern.     He concluded  that the placing of an award of this mag-
   nitude with the contractor       would not be in the best interest
   of the Government,




                                       13
ARMY'S BASIS FOR ACCEPTING
CERTIFICATE OF COMPETENCY ISSUED BY
SMALL BUSINESS ADMINISTRATION

        It is the policy          of the Department          of Defense to attempt
to resolve       differences        between the Small Business           Adminis-
tration     and a military          department      regarding     the issuance    of
a Certificate         of Competency through            a complete    exchange of
preaward      survey information.              The Armed Services       Procurement
Regulation       provides     that,      in the event a certificate          is is-
sued and the contracting               officer    has substantial       doubt as to
the ability       of the contractor            to perform,     the matter    be re-
ferred    to higher       authority        for instructions.

        The contracting       officer,    after    being notified         through
Army channels        that the Small Business          Administration          in-
tended to issue a certificate             to Bristol,        attempted      to ob-
tain the information          developed     by the Small Business            Admin-
istration's        Boston Regional     Office    for evaluation.            The re-
gional      office   advised    the contracting       officer     that the files
had been forwarded          to the Small Business          Administration
headquarters.

     The contracting       officer     then recommended that an infor-
mal meeting    be held with the Small Business         Administration
in Washington,     to further      explore  the basis on which Bristol
had been qualified      for a certificate.

        A proposed meeting          with Small Business      Administration
personnel      was arranged        by an Army Materiel     Command official;
however,     it was subsequently          canceled.    An internal       memoran-
dum from officials           of the Electronics     Command stated        only
that an official         in the Office       of the Assistant     Secretary     of
Defense (Installations             and Logistics)   had canceled       the meet-
ing on the basis that there was no further                 need for exten-
sive and prolonged           discussion    since all available       preaward
evaluation      data on hand had been furnished            to the Small
Business     Administration.

       We have determined        that the authors    of this memorandum
erroneously      designated    the office   of the official;    he ac-
tually   was in the Office         of the Assistant   Secretary  of the
Army (Installations         and Logistics).      The memorandum directed



                                          14
the contracting officer  to proceed with the necessary award
action on the basis of the certificate.        The contracting of-
ficer then awarded the contract    to Bristol.

        We attempted to obtain additional              information    regarding
the cancellation          of the proposed meeting between the Army
and the Small Business Administration.                   We interviewed     the
individual       serving as the Assistant          Secretary of the Army
(Installations         and Logistics)     at the time of the award, as
well as the official           in his office     identified     in records
available      at the Electronics       Command as the one who canceled
the proposed meeting.            Neither official        could recall cancel-
ing such a meeting,            Personnel in the Assistant          Secretary's
office     told us that the office         files    contained no informa-
tion relative        to the cancellation.          We were, therefore,        not
able to investigate          further   into the basis for the cancella-
tion or to determine whether anyone communicated with the
official,      identified      as having canceled the meeting, just
prior to the cancellation.

ATTEPPTS TO OBTAIN ADDITIONAL INFORHATION
FROMSMALL BUSINESS ADMINISTRATION

        We also met with representatives     of the Small Business
Administration      to obtain information   pertinent    to our exam-
ination.      They advised us to submit our request in writing,,
On October 24, 1968, we wrote to the Small Business Adminis-
tration     and requested that we be furnished      with the file re-
lating    to the issuance of the certificate       to Bristol.   ( 'See
app. III.>

       An exchange of letters    followed over a period of more
than 2 months during which we were unsuccessful             in obtaining
the information    we had requested.       (See apps. IV through
VII,>    Finally,  in alemerdated       December 31, 1968, the
Small Business Administration       furnished    us with the basis for
its decision to issue a certificate         to Bristol    but claimed
that information    we were requesting, as to (1) who made the
review for the Small Business Administration            Certificate      of
Competency Committee, (2) who were the members of the com-
mittee,    and (3) the contents of the minutes of such meetings,
was privileged.      (See app. VIII.>      We,therefore,have        been
unable to obtain this information.
AGENCY AND CONTRACTOR COMMENTS AND
GAO EVALUATION

Small    Business      Administration

        The Small Business            Administration,          in commenting       on a
draft    of this     report      (see app. X), concluded             that the infor-
mation presented,           insofar       as it pertained         to the Small Busi-
ness Administration,            was substantially            the same as that con-
tained     in its files.          The decision        to issue a Certificate             of
Competency,       according        to the Small Business            Administrationss
reply9    was    based   upon      thorough     investigation        and evaluation
of all available         facts       bearing    on Bristol@s        capacity     and
credit.      Because of subsequent              events,     i.e.,    Bristol's      per-
formance     of the contract,            the Army's settlement            of Bristol's
claim in the amount of $1.4 million,                     and an award to Bristol
for 4,373 additional            radios,      the Small Business           Administra-
tion felt      that its judgment            had been corroborated.

       Additionally,      the comments cite our decision            (B-156971,
August 23, 1965) which denied a protest              against     the issuance
of a Certificate        of Competency in this case and which held
that the issuance        by the Small Business       Administration         of
such a certificate        is conclusive     on the contracting         officer
with respect        to a small business     bidder's   capacity      and
credit   to perform      a specific    Government    contract.

       We do not agree that subsequent                events vindicated       the
Small Business        Administration's         judgment     in this matter,
As indicated      further      in the report,       the contractor's       deliver-
ies were late;        the quality        of the completed      sets was ques-
tionable;    and the contractor            advised    the Government     on two
occasions    during      1968 that,       because of financial       problems,
the contractor       was unable        to comply with the established
(production)      schedules.

Department      of   the   Army

       A draft  of this  report was also submitted      to the Depart-
ment of Defense for its review      and comment.    The Department
of the Army, replying     on behalf   of the Department    of Defense
(see app. XI),    stated  that,  in discontinuing   its efforts    to
persuade    the Small Business   Administration   to withdraw


                                             16
Bristol's      Certificate of Competency,         it had deferred to that
agency's judgment that Bristol      could         perform the contract
satisfactorily.
           c
Bristol    Electronics,      Inc.

        Bristol      was also invited   to comment on GAO's draft re-
port.      Bristol's     reply  (see  app. IX) included the contention
that the Small Business Administration's             evaluation  of
Bristol     was performed in a detailed       and professional    manner
while that of the Army's personnel team was brief,              cursory,
and predetermined.
         In examining into the Army's evaluation              of Bristol's
capacity to perform, we found that it covered all major as-
pects of the prospective            contractor's   operations      and in-
cluded evaluations          of the adequacy of its engineering             and
technical     staff,     record of contractual       performance on prior
contracts,     plans for a make-or-buy program, availability                   of
subcontractors         and material     suppliers,   prior experience with
military-type        radio receivers      or transmitters,      technical
facilities     for inspection        of incoming parts, and an analysis
of the contractor's          current and prospective        financial      capa-
bility.




                                        17
                             CHAPTER3

                  BRISTOL'S PERFORMANCE
                                      RECORD

CONTRACTPRICE INCREASEDSIGNIFICANTLY
FROMAWARDPRICE

       Bristol   was awarded the labor set-aside    portion of an
advertised     procurement at a unit price of $505 for the
AN/PRC-25 and $500 for the RT-505.        Changes and technical
problems experienced by the contractor,        which resulted   in
delay claims, constituted       the bulk of the $255 a unit by
which the initial      award price was increased as of September
1969 o

CONTRACTOR
         DID ----
              NOT MEET DELIVERY SCHEDULES
                                ---
       Our review of Bristol's       performance under the subject
contract    and the subsequent add-on award shows that Bristol
experienced     considerable   difficulty    in meeting delivery
schedules.      Although the Army considered taking action to
terminate    the contract,   it did not do so because of its con-
tinuing   need for whatever radios might be produced.            Under
the terms of the initial       contract,    production   of the first
units was to begin during October 1966. Deliveries              were
scheduled to peak at 850 units a month starting            in January
1967. Delivery of the total contract            quantity  of 8,554
units was to be completed by September 1967. The contractor
did not meet the original       delivery    schedule set forth in the
contract,    nor did it meet the delivery        schedules set forth
in revisions     that had been made up to October 1969. (See
chart, p. 21.)
       Under the first revision,  delivery  of initial     units was
postponed 8 months to June 1967, with delivery        of final units
postponed 10 months to July 1968. This revision         of the de-
livery   schedule was due, in part, to the additional       time nec-
essary to incorporate   some 54 engineering   changes (referred
to as Technical Action Requests) initiated     through mid-April
1967. Of the 54 changes, 35 were initiated       by the contrac-
tor and 19 by the Government.     Only one Government-initiated
Technical Action Request (No. FEB-7) appears to have had any



                                  18
significant  impact on the delivery    schedule.    This request
included the changes made to the contract      through January 13,
1967, and resulted    in an increase of over $600,000 to the
contract price.    Bristol  had contended that the various
changes would cause a 313-day delay in the contract       delivery
schedule.
       In modifying the contract     to reflect   the negotiated
price increase for this Technical Action Request, the Govern-
ment acknowledged that the changes contained in the request
caused a 283-day delay, and this was reflected          in the first
revision   to the contract  delivery    schedule.    It appears that
a problem with Government-furnished        gauges was not involved
in this price change.

      The contractor   made shipments-of       the first  48 units in
June 1967 but made no shipments in July 1967. Consequently,
on August 1, 1967, the Government notified           the contractor
that it was considering     terminating     the contract   for default
and requested the contractor      to show why such action should
not be taken.     The contractor    replied    that it had not
breached the contract     and cited unresolved technical         prob-
lems as the primary cause of delay.

     The contractor proposed to complete         deliveries   by No-
vember 1968 if the Government would:

      1. Make available  additional   test equipment it claimed
         was needed because of the Government's invoking
         class A mandatory inspection.     (See pa 23.)
      2. Establish  and resolve all questions on the applica-
         tion and usefulness   of gauges provided by the Gov-
         ernment for testing   modules.
      3. Authorize  shipments prior to group C tests1 which
         deal with dimensional   and design aspects of the
         equipment.

1
 A group C test is the final   inspection performed at the
  contractor's plant on two units selected from each lot.


                                   19
        On September 27, 1967, the contracting      officer       agreed
to the third condition      of the proposal with the provision
that Bristol     agree to correct any defects in equipment pre-
viously    accepted and shipped that were discovered          as a re-
sult of the group C test.        The contracting   officer      revised
the delivery     schedule a second time to extend the completion
date to November 1968, as proposed by the contractor.                How-
ever, he did not accept the other two conditions            on which
Bristol    had predicated   its revised delivery    schedule.        As a
result,    the contractor   appealed the contracting       officer's
decision to the Armed Services Board of Contract Appeals on
January 29, 1968.       (See p. 28.)

       In July 1968, the Army decided to negotiate     Bristol's
claim for reimbursement of increased costs allegedly         in-
curred.    This claim was settled    on April 19, 1969, and the
appeal was withdrawn.     The contract   price was increased
about $1.4 million,    and the delivery   schedule was modified
to require monthly deliveries     of 630 radios with deliveries
to be completed by October 15, 1969.

       From the date of the Bristol      claim until      the decision
in July 1968 to negotiate,       the Army continued to extend
Bristol's    delivery  dates.    This course of action, rather
than termination,     was recommended by the Boston Defense Con-
tract Administration      Services Region.       Bristol   during this
time was experiencing      a financial   crisis.       It appears that
termination     would have put Bristol    into bankruptcy.          The
Army believed that,     Bristol,    even with    the  problems   it   expe-
rienced,    could have produced and delivered          500 radios a
month.
        In July and again in August 1968, Bristol         advised the
Government that it was unable to comply with the established
schedules as a result of financial           problems.  The contract-
ing officer,      in October 1968, requested that the contractor
provide concrete evidence that it was making adequate prog-
ress toward full production,         or the Government would have no
choice but to proceed with a default            action. In its reply
Bristol    indicated   its willingness     to produce and identified
changes in management and other remedial steps taken.              It
also proposed a revised delivery          schedule with deliveries    to
begin in October 1968 and to be completed by September 1969.


                                    20
                                                                                      SCHEDULED        DELIVERIES        VERSUS    ACTUAL DELIVERIES
RADIO.   SETS                                                                                                CONTRACT        - 07306


                                                 ORIGINAL      SCHEDULE                        SCHr3”LE       RE”lSlON     HO. I                      SCHEDULE    REVISION   “0.       ‘2
WI0
                                                                                                                                                                                                                        SCIIEDULE   REVlSlOW   NO. 1
800


700


600


MO


400


300


2w


100
                              ACTUAL        DELIVERIES
                                                                                                                                                                                                       ACTUAL    DELIVERIES
                                        \
     0


               1”l”““““‘l”““““’
                   0    N     D     J        F    M      AMJJASONDJ                                             FMAMJJA                                  SOND                JFMAMJ
                                                                                                                                                                                   I          I    I   II         I      I
                                                                                                                                                                                                                       JAS
                                                                                                                                                                                                                              I     I    I1
                                                                                                                                                                                                                                        ON
                                                                          1967                                                          1968                                                                    1969
                       1966


         I                             ORIGINAL    CONTRACT    SCHEDULE
          -       - -            -     LODlFlCATlDN     ND. 4, DATED 5-16-67
           . . . . . . . . . . . . . . BRISTOL    PROPOSAL    OF 9-17-6, AND CONTRACTING   OFFICER’S      UNILATERAL       SCHEOULE    OF 4-17-67.   DELIVERY    FROM NOVEMBER              1167
             . . . . . . .    BR,,TOL       PROPOSAL        OF 10-16.68
             *..-.*.          MODIFICATION         NO. 13, DATED          7.949
         -                    ACTVAL        DELIVFRIES
This schedule was not formally      accepted by the contracting
officer;  nevertheless,he   used it to monitor the contractor's
performance.    The schedule, which called for deliveries       of
540 and 630 on alternate    months beginning in January 1969,
was maintained    by the contractor   until March 1969 when it
again became delinquent.

       After the claim was settled          in April 1969, with the re-
sulting    change in delivery      schedule, Bristol        immediately be-
came delinquent.        By modification       13 dated July 9, 1969, the
Government agreed to still         another schedule revision         extend-
ing deliveries     to November 1969. The need for this revision
allegedly     arose from the Government's delay in releasing
funds to Bristol      from the claim settlement.            As of the end of
October 1969, the contractor          was still     delinquent,   having de-
livered 8,198 of the 8,554 radios required under the original
contract.      In October 1969, Bristol         contended that it was de-
linquent    because the delivery        schedule revisions      negotiated
did not include sufficient         production     lead time.     This con-
tention,    it should be noted, referred          to a contract under
which deliveries      were to have begun 3 years earlier.




                                    22
FACTORSCONTRIBUTINGTO
CONTRACTOR'SLATE DELIVERIES

      The Army continually    revised Bristol's      delivery     sched-
ule, without penalty to the contractor,         through modifica-
tion 13 in July 1969. We found that the earlier             delinquen-
cies might have been attributable,      with some justification,
to engineering   changes initiated    by both Bristol       and the
Government.    This does not appear, however, to be the case
with the later delays.

       Bristol asserted that       the delinquencies     were caused by
certain Government-initiated          actions,  as follows:

      1. Class A mandatory inspection--This        inspection,      in-
         voked by the Army in November 1965, is separate and
         apart from the inspections      performed by Bristol's
         personnel.    After the contractor's      personnel have
         completed their inspection,      as provided by the con-
         tract and in conformity     with military     specifications
         55137A as amended, the Government inspections             of the
         same items are performed by quality         assurance per-
         sonnel of the Defense Contract Administration             Ser-
         vices Regional Office,     using the same procedures           as
         those followed by the contractor.         As provided by
         the contract,    Bristol is required     to supply the
         necessary test equipment.       Contract-07306     provides,
         in part, with respect to inspection,         as follows:
     "K. STATISTICAL SAMPLING INSPECTION:"
           *            *             *            *            *

          t12. The extent of Government verification               in-
               spection shall be determined by the Gov-
               ernment and will include maximum utiliza-
               tion of the contractor's         inspection      rec-
               ords and the quality       history    of the con-
               tractor's   product.     Such inspection         will
               not exceed the definitive          quality     assur-
               ance provisions     established      in the spec-
               ification,   contract,     or order, except that
               the Government reserves the right to per-
               form any amount of inspection            (including
              100% inspection) when the contracting       officer
              determines such additional inspection       is re-
              quired."

       Bristol    contended that the Government's requiring       this
inspection     constituted    a change to the contract which the
contractor     could not have anticipated       from the terms and
conditions     of the invitation     for bids.     The contractor also
maintained that additional        test equipment should have been
provided by the Government.          Bristol   contended further  that
processing     time had been increased and that the rate of
production     thereby had been adversely affected.

      2. Requirements for additional      gauge tests--The      re-
         quirements for these gauge tests are set forth in
         military   specification   55137A. The purpose of the
         tests is to ensure interchangeability         of all modules
         regardless   of manufacturing    source.    Bristol    con-
         tended that its modules passed quality         assurance
         tests on its own production      test fixtures      and worked
         in the radio sets'but    that its modules did not al-
         ways pass the interchangeability       requirement     of the
         Government gauges without extensive repair and re-
         alignment.    On this basis, the contractor         asserted
         that the Government gauges were deficient.

      Bristol  first  mentioned possible problems with gauges
in late 1966. Numerous conferences         and discussions      were
held on this matter, and during November 1967 all electrical
gauges were removed from Bristolls       facility     and returned to
Fort Monmouth, New Jersey, for test and recalibration.
Pending return of the gauges, Government inspection             of mod-
ules for interchangeability      was waived.      Nevertheless,    on
March 11, 1968, Bristol     claimed that, because of deficient
gauges 9 it had to initiate     several changes to its production
setup for testing    modules, which resulted       in production
delays and increased costs.

      The Government did not accept Bristol's   contentions;
as a result Bristol  appealed these matters to the Armed Ser-
vices Board of Contract Appeals for settlement.      (See p. 28.1
     During    July, August, and October 1969, Army engineering
and quality    assurance personnel maintained that the radio

                                  24
was too sophisticated        for Bristol     to produce and that the
problems encountered by Bristol,           such as the use of the
gauges, resulted     directly     from a   lack of technical   ability
and engineering    talent.       Bristol   disagreed.

       Army procurement personnel have advised us that Bris-
tol's price was just too low. We believe that this con-
tributed   to the financial  problems encountered by Bristol
during the course of the contract.      To date, this has been
borne out by the experience of the other producers;     no other
contractor   has delivered  these radios to the Army for much
less than $600' a unit.

      It is our opinion that the adverse factors cited by the
Army in its preaward survey of Bristol             could have contrib-
uted to Bristol's     difficulties       in p'erforming the contract.
This is illustrated      by instances of Bristol's        inability    to
meet delivery     schedules and by its apparent shortage of
personnel with engineering         talent   and technical    ability.


1
    MEMCOR,under the non-set-aside         portion,  had an adjusted
    unit price of $595. Its lowest         unit price on all subsequent
    awards was $677.




                                                                            ,L’

                                    25
CONTRACTOR
         COMMENTS
                AND GAO EVALUATION

Bristol   Electronics,     Inc.,

        Regarding its deliveries   under the subject contract,
Bristol    stated that, although the contract was originally
scheduled for completion by September 1967, various events,
such as Government-directed      major changes without advance
notice,    had had a very serious impact on its ability     to
obtain material     and had destroyed its production   plans and
its cash-flow projections.

       On page 3 of its comments, Bristol      took exception    to
delivery    delinquency   data presented by the Army (see p. 13.)
in connection with its preaward survey of Bristol's          perfor-
mance record on three prior contracts       for components of ra-
dio sets.     Bristol   contended that the Army's data were erro-
neous and that deliveries       of certain components were com-
pleted ahead of schedule or were not delinquent         to the extent
shown by the Army. It should be noted, however, that the
delinquency     data presented by the Army reflect    the status of
deliveries    at the time of the preaward survey, not at the
time of completion of the contracts.

      Bristol reiterated     its contention   that production   was
adversely affected     because the electrical     test fixtures
(gauges) were not suitable       for their intended use and be-
cause the Government imposed class A mandatory inspection.

        Bristol's     summation of its performance was that never
once did its quality        fall down and that it had the highest
quality     of all manufacturers.       Bristol's    contention    is not
borne out by reports made available             to us by the Army depot
responsible       for final testing of the radio sets.           These re-
ports show that 408 (18 percent) of the 2,256 sets shipped
by Bristol       as of August 26, 1968, and accepted by the Defense
Contract Administration         Services regional     inspectors    had been
rejected     when rechecked at the depot.          We were informed that
these defects were considered major in that the radios could
not operate or be issued until          repaired.
      As indicated     on page 19, the Government accepted re-
sponsibility    for   some of the delays encountered by Bristol.


                                    26
In recognition of this, the delivery   dates in the contract
were extended several times; nevertheless,   the contractor
was seldom able to meet them.




                               27
                                  Cl@PTER 4

             REVIEW OF SETTLEMENT OF BRISTOL'S               CLAIM

BRISTOL'S     BASIS FOR CLAIM

        Bristol    claimed   that the addition        of class A mandatory
inspection       as a contract     requirement      constituted     a change
to the contract         and substantially      increased       the cost to man-
ufacture      the radios    and that the increased            cost could not
have been anticipated          from the terms and conditions            of the
bid solicitation.

       Bristol    claimed     also that the Government         was requiring
that successful        interchangeability       of the modules be estab-
lished    by tests     to be performed       on Government-owned        gauges
which were deficient           and that these tests      therefore      would
not reliably      establish      the usability    or interchangeability
of the modules.

         In a test conducted     in February     1967, Bristol   demon-
 strated    that modules known to be defective          and having miss-
ing parts      could pass any acceptance       test when tested    on the
Government's       gauges but that other modules which wopked in
the radio      would be rejected    after   testing    on the gauges.

        The contractor     attributed       increased    manufacturing        and
rework costs to the Government              fixtures.      It explained       that
module's produced      and tuned to the Government's             gauges had
to be retuned      to function      properly       in the radio;    Bristol's
position    was that the retuning           caused the modules to be re-
jected    and that the retuning         was outside      the scope of the
contract.

       In Bristol's       appeal to the Armed Services          Board of Con-
tract   Appeals     it claimsd     the additional    direct     cost incurred
to be $577,000.         This estimate    was subsequently        revised   to
$822,00O,total        cost plus profit     and revised      again to
$3,022,000     in October      1968.

ARMYeS REVIEW OF BRISTOL'S            CLAIM

       On the basis of their          review,  the Army's   trial        attor-
neys   concluded  that Bristol         had established    a prima        facie
                                        28
case that the Government's gauges were defective.           As a
result,   the attorneys     requested from engineers at the Elec-
tronics    Command affirmative     evidence that the contractor    had
received notice that module retuning was necessary and that
the problem, in producing modules which would pass gauge
testing    and operate to specifications      in the end-item,   could
be attributed     to something other than the gauges or the pa-
rameters measured.       In the absence of such evidence, they
felt that the Government's case was impaired and that nego-
tiations    should be conducted.

      The engineers could supply no such evidence.             They told
us that, in their opinion,        the requests of the Army's attor-
neys were unreasonable.         They contended that it should have
been evident from the drawings that the modules were tunable
and that therefore‘Bristo1        should have realized     without fur-
ther notice that retuning may have been required.              They
stated that Bristol      did not have the engineering       talent or
technical   ability    to refine their production      technique to
narrower limits     than measured by the gauges.         In the engi-
neers' opinion,     this was the problem and it involved          a lack
of production     know-how which could be associated with the
negative factors disclosed         in the Army's preaward survey.
     Army and Defense Contract Administration     Services Re-
gion quality   assurance personnel have indicated   that there
were certain   inadequacies  in the Government's gauges and
have questioned whether they ensured interchangeability.

       The Electronics Command engineers recognize that the
gauge tests are not the best means of testing     the overall
performance of the electrical    components but believe that
the gauges are an acceptable compromise at a realistic
price.    They believe also that the gauges do ensure module
interchangeability.

        The use of the Government's electrical      gauges under the
Bristol    contract  ceased in November 1967 because of the com-
plaints    made by Bristol.    The electrical    gauges were not
used subsequent to that time, and the test requirement           was
formally waived by the Electronics        Command in June 1969.
We were informed that the Electronics         Command engineers had
agreed to the nonuse and waiver to preclude Bristol          from
using this requirement      as an excuse for further    delay.    All.

                                    29
producers of the radio set, except Bristol,       have been re-
quired to meet the electrical  interchangeability      test re-
quirement.  So far as we could determine,      the Government's
gauges posed no similar problems for these producers.

         In July   1968, the Army decided   to negotiate   Bristol's
claim.




                                  30
NEGOTIATION OF BRISTOL'S CLAIM

       In October 1968, Bristol,         at the request of the Army's
trial    attorneys,   submitted a proposal in support of its
claim.      The proposal was compiled on a total cost basis and
consisted of the actual cost of 2,522 radios completed and
delivered     up to August 31, 1968, the estimated cost to com-
plete the 6,032 remaining radios,            and the estimated cost for
16,000 rejected      modules.     From this amount Bristol     subtracted
the contract price inclusive          through modification    10, result-
ing in the $3,022,000 claimed.            Army procurement personnel
and the contractor      and its certified       public accountant   in-
formed us that Bristol's         records provided no other basis for
proposing a settlement        since costs were not accumulated by
problem area or contract         modification.

      We asked the contractor if it could provide us with a
breakdown of the costs upon which its claim was based.    We
were informed that this was not possible  as records were
kept on a total cost basis.
      The Defense Contract Audit Agency questioned  $1,576,000
of the contractor's  proposed redetermined contract  price and,
concerning the basis upon which the claim was proposed,
stated:

      "The method used by the contractor            in determining
      its claim is in effect an entire repricing              of the
      contract.     No effort    was made by the contractor
      to isolate    and identify      either the losses pur-
      portedly    caused by the Government gages (SIC) or
      the Government caused delays.             To accept the
      method used by the contractor           is to assure the
      contractor    of a profitable       performance.     There is
      no relationship     between the contractor         costs as
      claimed and the contract         costs as awarded.       This
      contract   was awarded on a labor surplus area set-
      aside for small firms.          In fact, the contractor
      had to reduce its original          bid price to receive
      the award. Therefore,         to accept this repricing
      action is tantamount to negating the risk inher-
      ent to fixed price contracts           and contrary    to the
      provisions    of ASPR. Therefore,          we are unable to


                                    31
      make definitive   audit recommendations and it must
      not be construed that the audit results      shown be-
      low and detailed   in Exhibit A pertain to the gauge
      and delay claim.     The audit performed of the costs
      incurred and projected     and the audit recommenda-
      tions are to be considered merely a method to pro-
      vide the Contracting    Officer with available   means
      for negotiating   a settlement    in the Government's
      best interest."

       We believe that the above position         fairly   disclosed     the
inadequacies     of the contractor's    method of arriving        at its
claim.     In our opinion,    however, it'raises       a question as to
the degree of reliance       that could be placed on the
$1.4-million     balance of the contractor's        claim which the
Defense Contract Audit Agency did not specifically               question.
It appears that the Agency's report,          by not taking a posi-
tion on this balance,       permitted  an  interpretation       by the
contracting     officer  that it was not questionable.

        The Defense Contract Administration    Services Region
price analyst also reviewed the Bristol       claim and considered
its worth to be about $21,000 for the rejected modules plus
an unspecified     amount for delay costs which would be the con-
tractor's    responsibility   to present and support.    He stated
that Bristol's     method of proposal had failed    to specifically
identify    cost associated with Government actions but, on the
contrary,    had represented    a repricing of the entire contract.

       The contracting  officer   initiated    negotiations   relying
on the Army attorneys'     opinion that the contractor       had es-
tablished   a prima facie case for entitlement         that could not
be rebutted before the Armed Servikes Board of Contract Ap-
peals and that it was conceivable         that the Government could
lose the entire $3,022,000 claimed.

      Although it is conceivable    that the Government could
lose the entire   $3,022,000 claimed if the matter went before
the Armed Services Board of Contract Appeals, it is also
possible that, if the weaknesses in the contractor's     claim
brought out in this report were to be presented to the Board,
the contractor   might have received considerably   less than
the settlement.


                                    32
      We believe that the possibility   that the Board con-
ceivably might award more is not a sound basis for justify-
ing a settlement.    The matter is speculative.   The Board,
being an impartial   third party, should be in a position   to
render a fair verdict.

      Negotiations     were conducted that resulted          in an agree-
ment, subject to approval by the Electronics               Command, by
which the Government would increase the contract               price by
$1,435,176,    take title      to approximately      16,000 modules, con-
vert a partial     termination     for default on a second contract
held by Bristol      to a partial     termination     for convenience,
formally   reduce the monthly delivery           requirement   to 630 ra-
dios, and extend the contract           completion date to October
1969. In return,       Bristol    was to waive all claims against
the Government, except for one Technical Action Request;
withdraw its appeal to the Board under this contract;                and
waive all claims against the Government relating               to the sec-
ond contract.

        An April 1969 briefing     given to the Commanding General
of the Electronics       Command resulted   in affirmation    of the
acceptance of the negotiated        offer.    In addition  to the con-
sideration     given to factors previously      discussed,   considera-
tion was given to Bri$tol's        adjusted price asbeing in line
with prices paid for the radio sets to other contractors              and
to the expectation       of good yield from the rejected modules.
The Electronics      Command's chief counsel recommended that the
Bristol    offer be processed for approval by the Board; however,
this was rejected      on the grounds that, if Bristol       did not re-
ceive the money from the adjustment immediately,           the delays
inherent     in processing   the offer at that time would force
Bristol    into bankruptcy     and the advantages of a settlement
would be lost.
        It is our opinion that there can be no realistic          evalua-
tion of the contractor's         claimed additional    costs unless
these costs are identified          with the matters under dispute.
Bristol's      claim essentially     concerned the testing   of the mod-
ules on the gauges that it claimed were unreliable            and the
resulting      rework of the modules.       We found no evidence that
the contractor       had been required     to support the claimed addi-
tional     costs.    In our view, the settlement      of the claim was
questionable,       since reviews of the claim made by the Defense

                                     33
Contract Audit Agency a;ld The Defense Contract Administra-
tion Services Region price analyst could establish   no direct
relationship  between the amounts claimed and the additional
costs arising  from the factors used as the basis for the
claim.

       We believe that comparison of the adjusted prices with
prices paid to other contractors         for the radios is of doubt-
ful value as an indicator       that the settlement      of the claim
was reasonable.       The contract   involved was a firm fixed-
price-type    contract    with no provision    for repricing     it to
bring it into line with the prices paid to other contractors.
The contractor's      claim was for damages resulting        from cer-
tain actions of the Government.          Unless the other contrac-
tors had similar      claims, it appears to us that the price
paid to them would not be relevant.

     Further,   saving Bristol    from bankruptcy did not appear
to us to provide any assurance that the Army would reoeive
good quality  radios on a timely basis.       The Army had experi-
enced quality  and delivery    problems with this contractor.




                                  34
AGENCYAND CONTRACTOR
                   COMMENTS
AND GAO EVALUATION

Department    of the Army

       The Department of the Army agreed that Bristol's          claim
had been settled by mutual agreement without establishing             a
relationship      between the amounts claimed and the alleged
causes of the increased costs.           The Army disagreed,  however,
that the settlement       of the Bristol    claim had been improper,
since the Court of Claims and the Armed Services Board of
Contract Appeals allow a settlement          to be made in this man-
ner when a contractor's        accounting   system is not structured
to permit costs to be allocated          to specific  claims; the con-
tractor's     costs are found to be reasonable;       and the evidence
is sufficient      to allow a fair and reasonable approximation.

      It appears to us that the Court of Claims does not fa-
vor this type of settlement.        The court, however, has stated
that this type of settlement may be used only where there is
no other alternative.     Also, both the price analyst and the
Defense Contract Audit Agency, whose function         it was to au-
dit the contractor's   proposal,     pointed out that there was
no assurance that the amounts claimed were the result of the
Government's actions and not the result of an unreasonably
low bid, contractor   inefficiency,      or other actions by the
contractor.

       We believe that, as a matter of sound business prac-
tice, settlement    of claims by contracting  officers on a
total-cost    basis is undesirable and should be avoided.

       In our opinion the settlement       of claims on a total-cost
basis can result     in a firm fixed-price      contract's   becoming,
in effect,   a cost-type    or a redeterminable-type       contract
without the controls     normally present in such contracts
and can destroy the inherent       incentive    for cost control
contained in firm fixed-price-type         contracts.

      Bristol's   monetary   claim was made up of three      parts,
as follows:

      1. Claim for a revised cost for 2,522 units shipped as
         of August 31, 1968, submitted on the basis of total

                                  35
           costs incurred     from inception.        This cutoff date was
           used by the contractor        to coincide with its fiscal
           yearTend.    Bristol    originally    claimed costs of
           $2,144,827 f or 2,522 units.         The Defense Contract
           Audit Agency questioned $548,347 of these costs as
           being duplications,      incorrect    rate calculations,    or
           mathematical    errors.     Bristol,    for the most part,
           concurred in the costs questioned,            and a net amount
           of $1,596,480 was agreed to in negotiations,

       2. Claim for       a revised cost, based on projected    costs,
          for 6,032      units to be shipped subsequent to Au-
          gust 31,      1968.' The contracting  officer   accepted
          costs in      the amount of $4,306,185 for these units.
       3. Claim for $319,153 for an estimated 18,000 scrapped
          modules.    Only 16,000 modules were found in inven-
          tory.    As a result of this reduction  in quantity   and
          other adjustments,    the parties agreed to a settle-
          ment of $208,714 for these modules.

       In addition,     the contracting    officer   allowed an in-
crease in the profit       rate on the above costs to 7 percent
from the 5-percent rate included in Bristol's             breakdown of
the original      contract  price.     The total profit     allowed on
the above costs amounted to $427,797, resulting              in a total
cost plus profit       of $6,539,176.     The difference     between this
amount and the total contract         value of $5,104,000 was
$1,435,176,     the net amount at which Bristol's         claim was
settled.

       Bristol's       contention   (see p. 28) that imposition            by the
Government of class A mandatory inspection                   requirements     con-
stituted     a change in the scope of the contract                and thereby
increased processing           time and adversely affected the rate of
production       is not, in our opinion,          substantiated      by the
facts.     Both     the  invitation    for   bids   and   the   contract   itself
contained the clause reserving              to the Government the right
to perform up to loo-percent             inspection.       Therefore we be-
lieve that no allowance should have been made in the claim
settlement       for increased costs alleged to have been incurred
as a result of inspection           requirements       that were known at
the inception        of the contract.


                                        36
        On March 22, 1968, the contracting             officer    advised
Bristol     that it had an obligation         under the quality        assur-
ance provisions         of the contract     to make available       necessary
test equipment and facilities            required for use by Government
inspectors.        It was the contracting        officer's     decision     that
test equipment required by the Government inspector                    was rea-
sonable and must be furnished            by Bristol.        He stated,    there-
fore,    that   Bristol    was not  entitled     to any increase in con-
tract price for the cost of test equipment or to any change
in the other terms of the contract.               Further,     we could find
no evidence that Bristol         purchased any additional           test
equipment because of the imposition              of class A mandatory
inspection      requirements.

      Bristol's    claim was based largely      on the contention
that faulty Government-furnished       electrical    gauges had
necessitated    increased costs for module alignment,        repair,
and realignment.       The Army acknowledged its responsibility
for some of the production      delays encountered by Bristol.

       The requirement   for use of electrical     gauges, however,
was discontinued     in November 1967, about 9 months before
the cutoff date of August 31, 1968, for allowance of in-
creased costs     for the 2,522 completed units.        In view of
this, we believe that the Army's basis for allowing an in-
creased price for the 6,032 uncompleted units,            the first     of
which was not to be delivered     until    9 months .after the
gauge requirement was withdrawn,        is questionable.        Further,
we see no reason for increasing      the profit     rate from 5 to 7
percent on the total claimed costs.         The lower tj-percent-
profit   factor was included in the contractor's          original
bid.

        In our opinion,    the proper method for settling       Bristol's
claim should not have been what amounted to a repricing               of
the contract.      Although both the Army and *Bristol agreed
that it was impracticable        to identify    and allocate,    from
Bristol's    accounting    records,   the specific   costs associated
with the various elements of its claim, we believe that it
was incumbent on the contractor          to provide its best esti-
mates of those costs and on the Army to negotiate             the
settlement    accordingly.      In the case of the valuation        of the



                                       37
scrap modules, this apparently was done. We believe that it
also should have been done on the costs projected  for the
6,032 uncompleted units.

Bristol   Electronics,    Inc.

        Bristol,     in commenting on this portion of our draft re-
port y stressed the inadequacies          of the electrical    test fix-
tures (gauges) and the Army gauge engineers'              lack of techni-
cal ability       and engineering   talent.     The Army's manner of
negotiating       Bristol's  claim, i.e.,    the 19 months used for
evaluation       and the delay in paying the settlement,        was also
criticized.

        In commenting on our statement that all producers of
the radio set except Bristol     had been required to meet the
electrical    interchangeability  test requirement,    Bristol
stated that, from observations     of one competitor's     product,
it knew for a fact that they (other producers)        did not use
gauges as desired by the Army.

Recommendation

      We recommend that the Secretary of Defense take'.steps
to discourage the settlement    of claims based on total cost
and require contractors   to furnish documentary evidence
showing the additional   costs incurred because of the factors
which form the basis of the contractors9    claims.




                                    38
                              CHAPTER5

          EVALUAT'IONOF ADDITIONAL AWARDTO BRISTOL

ARMy'S BASIS FOR MAKING THE AWARD
       Additional   requirements       for 4,373 AN/PRC-25 radio sets
were established     during fiscal year 1969. Due to the urgent
requirement     for the item, the Army's initial         plan was to
procure it from MEMCORwithout competition;              however, the Army
decided that it had sufficient            time to obtain competition.
Bids were orally     solicited     from the three known sources ca-
pable of furnishing       the required delivery.        The award was
made to the low bidder,        Bristol,      on July 18, 1969, at a unit
price of about $519.         The other two bidders,      RCA Corporation
and LTV Electrosystems,        Inc., MEMCORDivision,        submitted of-
fers of $839 and $686, respectively.

      The requirement     that electrical     gauges be used to deter-
mine module interchangeability        was waived for the bid solic-
ited from Bristol    but not for those solicited        from the other
two producers,    Army officials       advised us that the deletion
of this requirement     from the solicitations      from other pro-
ducers would have had only a nominal effect           on their bid
prices and that this requirement could have been deleted if
it had been a deciding factor in making the award.

       From our discussions    with Army engineering      personnel,
it appears that meeting the test-gauge        requirements      involves
costs for one-time refinements       to the production     process
which do not recur.       It appears also that the need for using
the test gauges would be minimal once the two producers had
an established    production   design which would meet inter-
changeability   requirements.      Apparently  RCA Corporation        and
MEMCOR incurred    these costs on earlier     contracts.      It appears
further   that, if the requirement     was not needed, it should
have been waived for all producers solicited.            On the other
hand, if the requirement was needed, it should not have been
waived for any producers.

      Prior to awarding the add-on order to the contract    held
  by Bristol,  the Army evaluated Bristol's   capability  to per-
  form under the terms of the contract.     The Army concluded

                                    39
that Bristol   possessed  the necessary technical,     produc'tive,
financial,   and other resources to meet the required deli=?ry
schedule and to produce at the bid price.      Bristol's     perfor-
mance under the prior contract was considered to be satisfac-
tory.

       Following are the matters considered by the Army in
reaching its conclusions   on some of the more critical eval-
uation points.

Past performance

        In evaluating    Bristol's  past performance as satisfactory,
the Army cited (1) the contractor's        ability
                                                 _  to meet its own
delivery      schedule of October 16, 1968, (2) the contracting
officer's      statement that past performance had been satisfac-
tory a    and  (3) the fact that all the contractor's    previous
delinquencies       had been excused through the negotiation     of
revised delivery       schedules.

       We believe   that the fact that the completion date for
this contract was delayed in excess of 2 years raises a
question about the L~c~Y's findings       that the contractor's
past performance was satisfactory.         The contractor    has failed
to meet any of the delivery       schedules under the contract,
including    the original   contract  schedule and six revisions,
Since Bristol     was unable to meet the delivery      schedule that
it proposed under an October 16, 1968, revision,           the Army
was incorrect     when it cited Bristol's     ability  to meet the
requirements    under this revision.      TJnder these circumstances
it does not seem reasonable to consider that the contractor's
performance was ‘satisfactory.

Production   capability
       The Army based its decision      that Bristol    could produce
 to meet the schedule delivery     requirement     on (1) a January
 1968 Electronics    Command industrial     engineering   study which
 concluded that Bristol    possessed a production-line        capability
 of about 825 units a month, assuming no production           problems
 were encountered,    and (2) past deliveries      during certain
'months which equaled or exceeded the monthly add-on require-
 ments of 630 units.     The industrial     engineering   study showed,
 however, that,although    Bristol   possessed a theoretical

                                   40
capacity of 950 units,   its practical    capacity at that point
in time was about 450 units.      The limiting    factor was iden-
tified  as the lack of production-line      personnel.    At the
time the study was performed,     the contract    required peak
monthly deliveries  of 850 units.
        Industrial       engineering   officials    of the Electronics
Command advised us that, in conjunction               with the proposed
add-on award, they had been requested to inform Government
contracting        officials    of Bristol's     maximum capabilities.
In a memorandum dated June 27, 1969, they stated that there
was no reason to believe that Bristol               could sustain produc-
tion at a level of over 500 units for future add-on awards.
This conclusion          was concurred in by Defense ContractAdminis-
tration     Services Region officials,
     We found that, from the inception   of basic contract
DA-36-039-MC-07306(E),  Bristol  had delivered   630 or more
units a month on only two occasions.
Financial     capability

        Bristol     experienced       financial      difficulties       during the
performance of basic contract                -07306(E) which grew to the
point where, 2 months prior to the add-on award, the admin-
istrative       contracting      officer     reported that the contractor's
financial       position    was precarious          and that the contractor
faced possible         bankruptcy.        Bristol's       financial     situation
improved with the April 19, 1969, negotiated                        settlement    of
Bristol's       claim before the Armed Services Board of Contract
Appeals in the amount of $1.4 million,                      of which $754,000 was
released to Bristol.             Because of the reported demand by the
contractor's        bank for full repayment of its loan and because
of demands by vendors for payment of past-due accounts,
the contractor         was still      faced with an immediate cash short-
age, even after the claim settlement.                       As a result of the
contractor's        projected     cash shortage,          the Army, on June 28,
1969, first        evaluated Bristol         as financially         incapable of
performing       the add-on award.

       Bristol   developed a financial  plan to improve its cash
position     by (1) extending its payout schedule to vendors
and (2) placing a moratorium on the retirement       of obliga-
tions due two affiliates.       On the basis of the contractor's

                                        41
presentation    of an improved cash position, in a reevaluation
dated July 10, 1969, the Army concluded that Bristol     was fi-
nancially    capable of performing the add-on award.
      We believe that the extension of the contractor's            pay-
out schedule to its vendors could be of questionable             bene-
fit to its performance under the add-on award.     It is          con-
ceivable that, if vendors are not paid promptly,     they         may
not supply materials  needed for production.   (See p.           45.1
Ability      to produce   at the award price

      The Army concluded that Bristol           could produce the
AN/PRC-25 radio set at a unit price            of $519 on the basis   of
the following  reasoning.
          1. The original  award at $505 was ultimately       increased
             to $760, primarily   as the result    of technical    prob-
             lems and the negotiated    claim settlement,     neither of
             which should be experienced again.

          2. The contractor   had excess inventory   with an estimated
             value of at least $500,000, which had been procured
             in 1965 in anticipation    of the Government's exercis-
             ing options for increased quantities.       Bristol claims
             to have discounted    this inventory  to the Government
             in pricing   the current award.

          3. A recent award had been made to Standard       Winding
             Company, Division  of Ovitron Corporation,      for 7,079
             units at a unit price of $449.

     Standard Winding obtained a line of credit of $1.5 mil-
lion with a corporate backer guaranteeing    the loan, since
the Army was apprehensive   about awarding it a contract   be-
cause of its low bid price.

        We believe that serious doubt exists as to whether the
add-on award should have been made to Bristol,             in view of
delays experienced with Bristol        in the past coupled with
its current production    and financial      uncertainties.
Bristol    was delinquent on the add-on quantity,          and a letter
from the administrative     contracting    officer    requesting
Bristol    to show cause why the contract       should not be ter-
minated for default was issued in January 1970.
                                     42
AGENCYAND CONTRACTOR
                   COMMENTS
AND GAO EVALUATION

Department    of the Army

        In making the second award, the Army said it had de-
termined that Bristol          was capable of fulfilling     the neces-
sary commitments on the basis of its improved performance
and financial       condition.     Although the Army concurred in
the finding     that the gauge requirement was waived only for
Bristol,    it did not concur in our opinion that the require-
ment should have been waived for all suppliers.                The Army
also disagreed with the doubts that we expressed in our
draft report concerning the advisability              of awarding a sec-
ond contract      to Bristol.

      The Army also stated that it was not aware of any de-
velopment which would suggest that its finding  of financial
capability  was improper.
Deletion of test-gauge     requirement
from Bristol  solicitation
       We believe that the Army has not satisfactorily      re-
sponded to the question as to why some manufacturers        were
required to use gauges; although Bristol      was permitted     to
omit the gauge test.    Presumably, a requirement      such as the
gauge test is imposed to ensure that the items manufactured
meet certain quality   standards.   If it was found to be un-
necessary to meet such standards,     the requirement    should
have been removed.

      The limited   impact that the imposition     of the gauge re-
quirementhadon     prices bid by Bristol's    competitors--and      the
fact that the contracting      officer could have deleted the re-
quirement for the other bidders if it affected         their chances
of obtaining    the contract-- does not satisfactorily      explain
why the same conditions      were not imposed on all bidders.

Propriety    of second award to Bristol

      The Army cited Bristol's   delivery and production   record
during the period October 1968 through May 1969 as one of
the factors considered   in making the second award.     This

                                   43
record was believed    to have demonstrated the contract&'s
ability   to produce 540 to 630 units a month on a single-
shift basis.     Also, the Army expected that some multishift
operation   would be used to meet the delivery  requirements.
Following   is a schedule of the contractor's  deliveries     for
the period October 1968 through June 1969.     (The month of
June 1969 has been added because the second award was not
made until July 18, 1969.)

                                          Units
                                        delivered
                 October 1968                182
                 November 1968               272
                 December 1968               352
                 January 1969                528
                 February 1969               616
                 March 1969
                    (note a>
                 April 1969                  5;8
                 May 1969                    620
                 June 1969                   352

aWork stopped at plant    due to financial     difficulties.

      Only in two 2-month periods had the contractor       been
able to sustain deliveries    of 500 units or more a month,and
in June 1969 these deliveries     dropped to 352 units.     We be-
lieve that this is further    evidence that, at the time the
second award was under consideration,     the contractorQs    abil-
ity to deliver  500 units a month was questionable.

       The contractor   was delinquent   on this second award and
by February 28, 1970, had delivered        only 902 units--or  an
average of 300 a month rather than the required 630 units a
month--despite     the Army's expectations     of a multishift oper-
ation.

       Bristol-manufactured     radio sets had a rejection rate
of about 10 percent at the Tobyhanna Army Depot, Tobyhanna,
Pennsylvania,     for the period July 1968 through June 1969.
In March 1970, subsequent to a preaward survey of Bristol,
a report was submitted by the Tobyhanna Army Depot which
contained the following      statements.

                                 44
          "1. During the life of the contract,           this supplier
          has had a continuous history         of delinquency   and
          quality     problems.    Defects at Tobyhanna Army De-
          pot have been found in excess of 25% at times.              At
          no time would the contractor         accept any responsi-
          bility    for arry deficiency    after the set left his
          plant and so stated to DCASR [Defense Contract Ad-
          ministration      Services Region] in writing."

Bristol      Electronics,     Inc.

        Bristol,   in commenting on our draft report,        said that
its technical      delinquency     was attributable to the unavail-s
ability     of certain    sole-source   components.   The example out-
lined was that, in December 1969, RCA Corporation             failed     to
conform to specifications          and was unable to deliver      transis-
tors to meet Bristol's         needs.
        We have been advised by RCA Corporation         that, although
it has no means of relating        its transistor    deliveries    to
Bristol    with Bristol's   AN/PRC-25 radio delivery        schedule,
the delays to which Bristol        alluded were the result of
credit holds invoked by RCA Corporation           pending receipt     of
payment from Bristol      to satisfy    past-due accounts receivable.
RCA Corporation     has also stated that its records do not re-
flect any complaints relating         to the quality    of its products.




                                       45
                                CHAPTER6

                             SCOPEOF REVIEW

        We reviewed the files at the Electronics               Command per-
taining    to the preaward survey and award of contract D&36-
039-AK-07306(E).         We also discussed the contract              award and
modifications       with responsible       officials      at the Electronics
Command and at Bristol        Electronics,         Inc.    In addition,   we
reviewed the files and discussed with officials                  at the De-
fense Contract Administration            Services Region, Boston, Mas-
sachusetts,     the preaward survey they made, as well as their
recommendations to the Army. At the Boston Regional Office
of the Small Business Administration,we                 reviewed such files
as it made available        to us relating         to its survey of Bristol
and its recommendations to the Small Business Administration
headquarters      in Washington.       We also discussed the recommen-
dations with responsible         officials       of the Boston Regional
Office.
       We discussed the award of the Certificate       of Competency
with officials     at the Small Business Administration     head-
quarters.      We did not review all Small Business Administra-
tion files because we were denied access to certain         informa-
tion considered by that agency to be privileged.          We also
contacted present and former responsible     officials     of the
Department of Defense in Washington, D.C., and at other
locations.




                                     46
                ‘i              Yli.

                          ,- ‘,:,
                           .‘.‘,




          ‘.-             ,.I              ‘4
                                   ;..,,
                     I,




EXHIBIT




 47
                                                           EXHIBIT A

                 LISTING OF PERSONSHAVING DIRECT

                       FINANCIAL INTERESTS IN

                      BRISTOL ELECTRONICS, INC. (note       a>


                             1965 to                   After
                         August 11, 1969          August 11, 1969
OFFICERS:
    President            Robert A. Pullman       Stanley   A. Revzin
    Vice President,
       Treasurer         Stanley A. Revzin       Stanley A. Revzin
    Clerk                Helen Chagnon           David Barnett

                                     Percent of voting stock
                                         or business owned

WJOR STOCKHOLDERS:
   Prior to August 11, 1969:
        Robert A. Pullman                          50
        Stanley A. Revzin                          50
   After August 11, 1969:
        Stanley A. Revzin                        100
OTHERS:
   Edward Gaffney                    Has had an undisclosed    fi-
                                     nancial investment   from
                                     1962 to date
aThis information was confirmed and/or       obtained through dis-
 cussion with Mr. S. Revzin, President       of Bristol  Electronics,
 Inc.




                               49
APPENDIXES




51
                                                                                              APPENDIX   I

    H.     R. GROSS
         30 DWr.. IOWA

RAYBURN     Ol’FlClI   WILOINQ




                                                                          February     19, 1968


                        Mr. Frank H. Weitzel
                        Assistant   Comptroller      General of the United           States
                        General Accounting      Office    Building
                        Washington,   D. C.

                        Dear Mr. Weitzel:

                        I have been informed          that the Small Business Administra-
                        tion,    on June 28, 1965, issued a Certificate          of Competen-
                        cy to Bristol      Electronics,      Inc., of New Bedford,   Massa-
                        chusetts,    which enabled the firm to receive         a Defense De-
                        partment    contract     worth $3,678.229,

                        It is further   alleged   that Bristol is currently              in default
                        on the contract    and that it has received   over             $2 million
                        in progress   payments.

                        The number   of this    case,       I am told,   is   COC BOS 15.

                        I am also informed      that another    firm, presumably      a competi-
                        tor, protested     the award of the contract      to Bristol,     alleg-
                        ing Bristol    couldn't    perform  it.

                        I would appreciate    it if you would make a check to determine
                        the facts in this case.      If they prove to be true, was the
                        Certificate    of Competency issued after    another   Government
                        Agency had made a determination'that      Bristol    was incapable
                        of performing?

                        Presuming the facts    as outlined     are substantially    correct,
                        I would appreciate    as complete    a listing    as is possible     of
                        the persons having a financial       interest   in Bristol,    and a
                        list  of its officers   and directors.

                        Thank you for    your   attention




                                                                  53
APPENDIX           II


  H. R. GROSS
    80 cm.. IOWA




                                                                                      October   14,   1968

        Mr. Elmer B. Staats
        Comptroller  General of the United                          States
        General Accounting   Office Building
        Washington,  D. C.

        Dear Mr.        Staats:

        In connection   with my request       for a review of the award of an
        Army contract   to Bristol     Electronics,      Inc.,   of New Bedford,
        Massachusetts   (your file     B-156971);      I would appreciate    it if
        you would include    information      relating     to the following:

        1.     After     the Army had rejected       Bristol     on the grounds it had
               insufficient     financing      as well as additional        deficienciencies,
               the Washington      Certificate      of Competency Review Committee
               of the Small Business Administration                came to the opposite
               conclusion,     apparently      on the basis of the same data used
               by the Army.       What is SBA's explanation           as to how this could
               happen?      Who made this review for the SBA Committee?                  Who
               were the members of this Committee?                Are minutes     of its meet-
               ing available?        If not, are minutes         of such meetings       normal-
               ly made and are they normally            available     to your Office?

        2.     After    the aware of the Certificate          of Competency,    the Army
               objected      and a meeting with SBA was set up.           It is my under-
               standing      that this meeting was cancelled,         by telephone,    by
               the Assistant       Secretary    of the Army, Installations        and Logis-
               tics.      If possible,     would you ,detennine     on what basis this
               officer      decided to cancel this meeting?          D&l anyone communi-
               cate with him concerning           this contract   just prior    to his de-
               cision?

        Thank you for             your   attention        to this       request.

                                                                         Sincerely,


                                                                F


                                                                         H. R. Gross-

       HRG/dj


                                                     54
                                                                                      APPENDIX III



                                  UNITED STATES GENERAL ACCOUNTING OFFICE
                                             WASHINGTON,     D.-C. 20548


CIVIL   OIVISION
                                                                   OCT 24 1968




                   Dear Hr.   rbmdolpht

                           we hnw, recelvdd a reqttast frota d member of Congrarr to revittw
                   the circunstmcea        under uhich the Gmall &:ainess    A&ini*tration
                   faauad Csrtlficate       of Competency NO. BOS-1s indicating       that Bri6td
                   utectronlc6,      fnc,,  New Bedford, E!eseachuretts,   ~66 qtralffiad   to pro-
                   duce    the 6~11 busineso ert-aride      pOrtim    of an Axmy procuiremant     Ob
                   AWPRC4S     radioo,

                           In order for u6 to perform an adequate review of thir matter
                   and ba rusponsive     to thir rrquert,     w6 believs    it will be nece6ratl)
                   for US to review the eatUe record tegarding the issuance of this
                   Certtficst~     of Wapetency~      Ue therefore    request that WI k fum
                   niched tha fib      on the lrrum~a of Certificate          of C0m-p~
                   Ne. BOS-1S to Brirtol      lMctxmit@,       fno,




                                                             Donald C. Pullen




                                                              55
APPENDIX       IV

                                      U.S. GOVERNMENT
                               SMALL BUSINESS ADMINISTRATION
                                    WASHINGTON,    D.C.   20416




     October        29, 1968



     Mr. Donald C. Pullen
     Assistant   Director, Civil Division
     United States General Accounting     Office
     Washington,    D. C. 2O$8

     Dear Mr. Pullen:

     We have received your letter   of October 24, 1968, in which you
     requested that your office   be furnished  the entire    file  on the
     Certificate   of Competency No. BOS-15, Bristol   Electronics,    Inc.,
     New Bedford, Massachusetts,.

     Since much of the information              contained in the file        is deemed
     to be business information            within     the scope of 18 USC 1905,
     the Small Business Administration               is unable to furnish        the file
     to your office        without   an assurance of adherence to the con-
     fidentiality       requirements     of this statute.         Upon receipt      of
     such assurance,         we will submit the file          to your office.      We
     would be willing         to confer with you to determine            whether the
     specific     items which your office          desires to make public are
     properly     classified      as confidential        and, therefore,     subject
     to 18 USC 1905.

     Sincerely,




L’             Audits    Division




                                              56
                                                                                             APPENDIX       V
                                                                                                   Page     1




ClVIL   BIVl§lON
                                                                    NOV 7 1968



                   bear     Mr. Randolph I

                           By lettar    of October 24, 1948, w@ r%qua%ted that you furnirh
                   UI the dils on iemmcs            of Certlficet8    of Competency No, BW-19 to
                   Bristol    Etectronlcr,     fncI,    tn order that wa might review it in con-
                   nsctlon    with responding        to a requsart for information  on thr utter
                   made of UI by a member af Congram.

                            Your latter   of October   29 state6    that8

                            %ince much of the informtim      eontiinsd      bn the fl Is
                            ir deemed 0~ be buelnese infomatlon      within    the scope
                            of 18 USC 1905, the Small Busineee Adminlsrtratlon             is
                            unable to furnish      the fill% to jm,~r offlcg    without    an
                            866umnce of adherence to the eonfldentlalfty             require-
                            ments of this statute.         upon recebpt of ruch %J?36UfMCe*
                            we will    submit the filea to your off&c%.        We would b8
                            willing    to confer with you to datsrrmine whether the
                            specific     Items which your office     deoir%a to rnetke pub-
                            lic are properly elasalfied        86 eonffdential     end, therm
                            fore,    subject   to 18 USC 1909.”
                           ft 16 our view, separate         tend apsrt from the fact that our
                   request      for your fll8 has originated         batemae of th8 interest     of an
                   individual        member of the Congreas , that under the provisions          of law
                   codified      at section    154 of title    31, United States Code, we have 8
                   rtatutory       right of accees and you havat Q ccorreaptmdlng        Qtatutotp
                   duty with r86pect        to providing      us the data we have reque6ted.         Them
                   fore,     there would not appear to b8 8ny ~8~68 for concern on your
                   part that tuning         the file    over to u6 would constituts      8 violation
                   by you of the provlslone of eectlon 1905.
                         %?T~OVW, w@ are Of the View,            in light   Of   our   r86pOn6ibilitieO
                   to the Csngresr , that our reporting        of information   to members of the
                   Congress doe6 not eonrtitute     % viotation      of 6ectdon 1905, though
                   the information  involved    be euch mu would give.rlsa        to a vlolatlon
                   of that 6ection     If r%port%d 8168wher8.       In line with thle view,
                   we intend   to report     to the Congrea6man inter86ted       in the Brllrtol
                   case intormaticm      which w8 heeve rm6lvsd     from your Boeton Regional
                   Office  and which may in B            86uf8 duplicste    information   contalnrrd
                   In the file    we have rq                      In making much report we
                   would indicate    tiu ml@       a!% of 6%ction 19Q5 to tha iafQrQIatioa       c%!w
                   tained     therein.

                                                            57
APPENDIX    V
     Page   2


       On the baris of the above underetmdfng,      we again request the
 cited fdleg and we do aaeure you , ae indeed we mmt, being ourselves
 bound by the prsvioions     of @action ANU, that WB Pntrtld to adhere to
 the confidant%albty    mquirernente   the section impo@ee,




                                    tieodose   J. Becker




                                    58
                                                                  APPENDIX VI


                              U.S.   GC~ER~~MENT
                      SMALL   BLMNESS         ADMINISTRATION
                           WASHINGTON,        D.C.   20416




NOV 19 1968

Mr. Donald C. Pullen
Assistant   Director,  Civil Division
United States General Accounting      Office
Washington,    D, C. 20548

Dear Mr. Pullen:

This is in reply to your letter   of November 7, 1968, in which you
again requested that your office   be furnished  the file     on the
Certificate   of Competency, No, BOS-15, Bristol   Electronics,     Inc.;
New Bedford, Massachusetts.

Since your office        has not given the assurance,       as requested by
our letter      of October 29, 1968, concerning your adherence to the
confidentiality       requirements     of 18 USC 1905, we are unable to
furnish     the file to your office.          However, if you could furnish
us with specific        questions    or identify   specific  information
which you need, we would be pleased to respond, as best we can,
within    the limitations       of the above cited law.

With regard to the information    that your office       obtained from
our Boston office,   SDA does not authorize       its release to an
individual  congressman without    first   being allowed to determine
which, if any, of such information       is confidential     and may not
be released to the congressman.

Sincerely,




                                         59
             VII

              UNl7m SFATES GENERAL ACCWNTING OFFICE
                          WASHIMGTQW,       i&C.    20548




                                         NOV 29 1968


                                                                                     ” j-,   ,   Ii;




Dear bk-. Randolph:
       Reference is made to your letter of November 19, 1968, regarding
the furnishing    to the General Accounting Office of the file on the
Certificate    of Competency No. BOS-lSp Bristol Electronics,  Inc., New
Bedford, Massachusetts.     You stated that you were unable to furnish
the requested file;    however, you would respond, as best you could,
to specific questions;.
     Accordingly,   would you please furnish                this office   with the
answer8 to the following questions.
          After the Army had rejected Bristol's      bid on the
          grounds that it had insufficient     financing as well
          as additional  deficiencies,    the Washington Certif-
          icate of Competency Review Committee of the Small
          Business Administration     came to the opposite con-
          clusion, apparently on the basis of the same data
          used by the Arg.      What are SBA's reasons and
          rationale for overcoming the findings and conclu-
          sions of the Army?
          Who made this     review      for the SBA COGCommittee7
          Who were    the members of this           Committee?
          Are minutes of such meetings made? If so, please
          furnish a copy of the minutes of this Committee
          meeting.
                                        Sincerely    yours,


                                     Donald/C. Pullen
                                     Assistant Director
?4r. Raymond Fe Bandolph
ChLef, Audits Division
Sti    Businssa Adrnidstration
                                            60
                                                                         APPENDIX VIII
                                                                               Page 1
                                  U.S.   GOVERNMENT

                                   usw.ms         ADMIMSTRATI~N
                               WASHINGTON,        D.C.   20416



                                                  December        31, 1968

Mr. Donald C. Bullen
Assistant   Director,  Civil Division
United States General Accounting      Office
Washington,    D. C. 20548

Dear Mr.   Bullen:

This is in reply to your letter   of November 29, 1968, in which you
requested SBA to answer certain   questions    related       to the Certificate
of Competency No. BOS-15, Bristol   Electronics,       Inc.,    New Bedford,
Massachusetts.

Your letter  inquires   as to '. . . SBA"s reasons and rationale     for
overcoming the findings     and conclusions of the Army?"   Our action
was based on the following:

            1.       The company had a satisfactory     record of
                     completion of contracts    obtained previously
                     through the issuance of SBA COC's.

            2. The company*s productive      facilities  were
                 adequate for producing   the equipment required
                 in accordance with the terms of the contract
                 under consideration,   and were readily   available
                 for that purpose.

            3. An adequate          staff,   including labor,   technical
                     and professional      manpower was available    to
                     Bristol.

            4. The necessary       materials,   supplies,             and sub-
                     contracted components and services               were avail-
                     able as needed by Bristol.

            5. Bristol's    management was experienced  and capable
                 of meeting all management requirements   imposed
                 by the contract.

            6. Financing          in the amount needed to perform a con-
                     tract  resulting   from the above referenced   IFB
                     would be made available    pursuant  to a signed
                     commitment by a bank that had previously      acted
                     in the same capacity    for Bristol.

                                             61
APPENDIX      VIII
           Page 2



                7. The Comptroller       Ccneral has consistently           held
                     that a bidder may be determined            to be capable
                     of performing    if he has the ability          to obtain
                      the necessary equipment,      facilities,        technical
                     skills,   and financial    resources.        See 42 Camp
                     Cen 532 wherein the Comptroller            General said
                     "A bidder who may not have the equipment and
                     personnel but who may have the a e . wherewithal
                     to obtain them could be considered            to be capable
                     of performing.fl

 The information      requested    regarding     questions    2, 3 and 4 of your    letter
 pertains   to internal      administrative      procedures    and communications     which
 we consider     privileged.

 Sincerely,




                                            62
                                                                                                                                              APPENDIX IX
                                                                                                                                                  Page 1




                                                                                                ~‘&~qd.-                      _-
                                                                                                           by
                                                                                                                                      MAHUFACTURING               PLANT
                                                                                           .’   .                *-2
                                                                       .                                                              AND     GENERAL         OFFICES
                                                                                                     f      ‘)            -
                                                                                .*.                                   .
                                                                           -*         VI                         .-                      651. 657 ORCHARD STREET
                                                                                                                                          NEW BEDFORD,   MASS. 02744
                                                                                                                                       TEL.   AREA    CODE   617 997.318,



19 May 1970




Mr. James H. Hammond
United    States   General             Accounting         Office
Washington,      DC 20548


Dear    Mr.    Hammond

Reference      is made to your draft,    file  number PP-279 entitled                                                              "Review       of the
Procurement      of AN/PRC-25   Radio Sets from Bristol       Electronics,                                                          Inc.,       New Bed-
ford,    Mass."    submitted  to us in advance   of publication.

Our company           cannot       accept      the report,           or the conclusions                contained         therein.
We find       that      the report          contains       inaccurate          facts,       probably        given      as such
to the GAO investigators,                      and certain           serious       omissions         of facts,         that      if
included,        would       have changed            the conclusions.                The ensuing          critique         will     sup-
ply details           to corroborate             this    statement.             It will       show that          the original
evaluation          of Bristol          Electronics,           Inc.,      was performed            in a more detailed
and professional               manner       by the Small          Business         Administration              but the ECOM's
personnel         team was brief,              cursory       and predetermined.                  As the president               of a
small      business,          I am in a position               to appreciate             the efforts           of SBA in the
very thorough             analysis        of a company           before       deciding        on the merits            of the ap-
plication         for a Certificate                of Competency.               I will      make particular              emphasis
on the gage problem                 whose design           was proven          technically           deficient         by actual
tests     at our plant             by Government           personnel.             I will      also     stress       the fact        that
once the Government                 changes        the delivery           schedule         by means of a bilateral                    con-
tract     modification,              the original          schedule         is no longer           a means of measurement
of contractor             performance.

The Digest       of page 1 makes reference             to the fact          that      our company      became
delinquent       almost    immediately       and cites       a comparison           between     the original
contract     delivery      date and the actual           deliveries         as of 31 October           1969.
As this    is a digest        of the complete        report,        I will      offer     my comments,        in
detail,    by referring         to later     pages   in the report.               I will     indicate     the
unfairness       in referencing        the original       contract         delivery       date    in view of
the impact       of the mandatory         changes    imposed        by the Government.




                                                                           63
APPENDIX IX
    Page 2
Page 7 briefly       describes      Radio'Set       AN/PRC-25   and refers   to the RT-505                                     as
being   similar    to the AN/PRC-25.            In actuality,      Radio Set AN/PRC-25    is                                   a
system    of various      components      consisting      of the RT-505 and accessories                                        ne-
cessary     for operation      and transportation.

Page 15 of the draft                   indicates          an analysis            of the supposed              cant:-ary       evaluation
made by the Army and SBA.                          In reflecting             back to the evaluation                    period,       it is
 recollected          that      the technical             survey        team of the Army consisted                      of two people
 from Fort Monmouth,                 neither         of whom earned              an Electrical            Engineering           Degree      in
an accredited             technical         university             or college.           In all,        the men spent             about     4
hours       including         a one-hour           lunch       period,       in performance             of their        evaluation          of
our company.              At that        time,       Bristol         had two Electrical               Engineers         and one Indus-
trial       Engineer        in charge         of production.                 The latter          was not interviewed                 so that
 it was not possible                 for the survey                team to determine               our production             plans.        It
is important            to realize          that       the contract            allowed       19 months         to produce          the first
unit     which      was ample          time to formulate                  production         plans.        Of the Engineers,                the
survey        team asked          only     one question              of myself,         as an engineer,              and did not ques-
tion      the others.             This     question         was not of a technical                    nature.         As to the equip-
ment in our incoming                   inspection            department,           it can be stated              that     it was in full
compliance          with      Specification              MIL-I-45208           as required          by the-past           contracts.            I
do not believe              it necessary             for a plant           to have all           types     of equipment            available
if it is not in use, especially                              prior      to award.          With a 19-month              production          lead
time,       equipment         can be purchased                or designed            and fabricated            as the time           approaches
for production.                The Army also made a very sketchy                               review      of our available              finances
by making          a desk review            in Philadelphia                without       talking        to Bristol's           management.
For a contract              of this        magnitude          and importance             to both parties,               detailed        questions
and facts          should      have been generated.                       As to lack of experience,                     Bristol's        manage-
ment produced             for     another       firm      much'more          sophisticated            electronic          hardware       of
greater         complexity         and volume.

 Of great        importance           is the analysis              shown on page 15 under                  paragraph         1.    It per-
 tains     to prior          performance.              The three        contracts        cited      were awarded           at different
 times     and were for similar                    and in part,           identical        items.        The Government,             under
 the changes           article,         instituted          a directed,          mandatory         change      that    required        a new
 design      of the aluminum                die casting.             Since     all    contracts         and items        were affected,
the change           had the effect              of grouping          the three        contracts         as one.         These items
were for use on the AN/VRC-12                            Program,       a vital       communications             radio     system      for
 use on Army vehicles                   and tanks.            As Bristol         was the sole           supplier,        the Military
Contracting            Officer        personally          directed       production          and delivery            of the various
 item      of the three             contracts          so as to meet his supply                   need,     thereby        causing       cer-
 tain    acceptable            delinquencies.               As a result,           our original          production          plan had to
be abandoned.                The Government              was well       aware of this           situation          and never       officially
criticized           performance.               As a matter         of fact,        upon completion              of these       contracts,
Bristol       was accorded              "verbal        commendation"           by the chief           of ECOM's Procurement                   Divi-
sion.        Bristol's          performance            of delivery          had saved the AN/VRC-12 Program,                         which       was
a vital        radio       communications              system      used in military             combat      vehicles        and we were
the sole         supplier         of these         units.




                                                                        64
                                                                                  APPENDIX IX
                                                                                      Page 3
We now see that a distortion     of the true facts of performance resulted   in a
denial of a contract    for Radio Set AN/PRC-25 because of an erroneous evaluation
by civilian  personnel.    The following   table delineates these three contracts
in their entirety   which displays    the over-all delivery situation.



CONTRACT                                ACTUAL DELIVERY COMPARED                 CITATION ON PAGE
ORDER NO          ITEM        QTY       TO CONTRACTREQUIREMENTS                  15 OF DRAFT



04396(E)          c-2297      2983      Complete 007 Days Ahead                  80 Days Delinquent
05104-PP-64       C-2298      8742      Complete 017 Days Delinquent             30 Days Delinquent
                  C-2742      2118      Complete 134 Days Ahead                  -----
                  c-2299      1012      Complete 098 Days Ahead                  -----

01880(E)          C-2297      2294      Complete    073 Days Delinquent          90 Days Delinquent
15426-PP-63       C-2742      2262      Complete    016 Days Delinquent          --em-

02952(E)          C-2298      6814      Complete    006 Days Ahead               Delinquent
15448-PP-63



Note that in all cases, the number of days delinquent            cited in the draft are
erroneous.    In particular,    the 80 days delinquency       was actually     completed 7
days ahead of schedule.      Please also note the ECOM omitted any citation             of
those items, within     the same contract,.as     being completed ahead of schedule.
Bristol   submits while this record is not perfect,         it certainly      does not war-
rant a turndown on the basis of delinquency.           It is entirely      inconsistent    with
our record of high quality,      words of praise given Bristol,         and the circumstan-
ces surrounding   the changes initiated       on the three contracts.

As a further    reference    to inconsistency,      one year after receiving   the AN/PRC-25
contract,    the Government had a critical         shortage of spare parts for the radio
for combat needs.       They required 61,200 modules of eighteen types to be delivered
with a starting     date of 30 days.       No other company could meet this requirement
except Bristol.      Bristol   delivered    all modules in a period of three months to
four days ahead of the contract          schedule.    This is certainly   not the record of
a delinquent    contractor.

In due course, Contract 07306(E) was awarded after the review performed by SBA
whose regional    office      spent three very full         days at Bristol.  At that time, an
analysis  was made of material             parts quotations    as to price and delivery.     The
SBA, through previous contacts with Bristol,                 was well aware of our qualified
technical  and production         ability.       They assured themselves that adequate finan-
cing was available       through our own funds, progress payments, and a letter              from
our bank expressing        financial       support.   They determined that our finances per-
mitted the purchase of necessary materials                and test equipment.   After the




                                                   65
 APPENDIX IX
     Page 4




regional           review,         the SBA Washington                   Office       reviewed         all     the facts            and were
very much detaileu                     in questioning               our financial             and tech;,ical              ability.             It
was only           then      that      they decided             to issue         the COC.           This      clearly          indicates
the contrast               in evaluating             Bristol          Electronics'            capability.              The SBA asked
detailed           information            and thoroughly                evaluated          our technical              ability,           finan-
cial       resources,            and plant         facilities.               The Army's           civilian          personnel            review
was cursory              and as evidenced                 by the facts,              preconceived             prior       to evaluation.
iililitary         supply        purchases         are a serious               matter       and all         bidders         should         be
given        equal       opportunity            under       the law to prove                their       ability.            Those put in
a position             of trust          should      themselves             have the proper               experience             and ability
to judge           others.           It can be seen,                from subsequent               events,         that      the SBA's de-
cision         to grant          the COC was proven                   correct,         for the Army awarded                      Bristol         an
additional             quantity         without        rejecting            Bristol.          In view of the true                     facts
concerning             Bristol's          record       on all         previous         contracts          performed            in the six
years        prior       to the turn-down,                  Bristol         should       not have been put in the posi-
tion       of requiring              a SBA COC in the AN/PRC-25                          contract.


  I believe         it is appropriate                    to comment             on the statements                     contained           on page
  19 concerning             delivery.             Although            it is true            that       the contract              was originally
 scheduled          for completion                 by September               1967,       the various               events       that       transpired
 during       that       period       more than adequately                       account           for the time.                 When the Govern-
 ment directs             changes          under      the terms            of the "changes"                    article         contained              in
 every      Government             contract,           time and funds                must be adjusted                    accordingly.                   In
 most instances,                 the changes             have a very decided                       impact         on delivery             and it is
 no longer          reasonable             to make references                    to the original                    contract         delivery
 schedule.            The Government                recognizes             this      by eventually                  negotiating             and is-
 suing      a contract             modification               that      incorporates               costs        for the change                 and a
 new delivery             schedule.             It is interesting                    to note          that        these      negotiations
 and the subsequent                   contract           modifications               are not done in a timely                             fashion
 so that        many months             will      elapse          while      a contractor                may appear            to be in tech-
 nical      default.             In the instant                 case,      the Government                  directed          major        changes
without         advance         notice        which        had a very            serious           impact         on our ability                 to ob-
 tain     material          and effectively                  destroyed           our entire              production           plan       and cash
flow      projections.                As a typical                example,         a directive,                designated            as FEB-7,
was issued            by the Contracting                     Officer's           technical            advisors          on 22 June 1966.
The document              was forwarded               to the Contracting                      Officer          on that        date.           He, in
turn,      did not order                its    implementation                  until        9 September              1966.         During          this
period,         Bristol         Electronics,               Inc.      submitted           its      preproduction               samples           for
approval.             The directive               required           Bristol         to alter            the hardened              steel        dies
used in casting                 the aluminum              front         panel.         This       change         required          an overhaul
of the dies,              which       is time consuming.                       The record             then shows that                 the direc-
ted alteration                was in error               and some months                 later        we were directed                   to again
alter      the dies           to the original                   condition.             The record              indicates          the tremen-
dous impact             on our production                   and the subsequent                      roll-back            in the delivery
schedule.             There       were other            mandatory            changes          that       had an unexpected                    impact
on production.                  In hindsight,                it would          appear         that       the drawings             given         to
Bristol        as the sole means of construction                                     were not in a condition                          to be used
for     bid purposes.




                                                                                66
                                                                                                                                   APPENDIX IX
                                                                                                                                       Page 5
It is now appropriate                       to comment            on the electrical                    test       fixtures,            also      refered
to as gages.               In October             1967,      Bristol         reported           its observations                     concerning            the
suitability           of the electrical                     gages.         We first          noted         that,         as a whole,             they were
not suitable             for their            intended          use as in most instances                             they would            reject        mod-
ules      from otherwise               acceptable             radios.          Secondly,             two of the gages were ruled
defective          by DCASR QARIC. As a result                               of Bristol's                request           of October            1967, a
meeting        was held          at Fort Motnmouth on 15 November                                  1967 at which                time Bristol               re-
quested        Military          command to send a qualified                              impartial             group        to Bristol             to verify
Bristol's          contention             that      the electrical               gages were deficient                          or not.           The mili-
tary      agreed       to this          request         and on 17 November                    1967 a team of sixteen                           Government
personnel          under       the command of LTC Newton                            visited          the plant.                After       an exhaustive
and very thorough                  test,        it was determined                   that      the gages were faulty                          and the
decision        was made to return                      all     gages to Fort Monmouth                          for repair             and calibration
and were to be returned                         within        a week.          The gages were not returned                                 until       the
following          year and the DCASR QARIC was instructed                                           not to implement                    the electrical
gages until           notified            to do so.             The record            shows that             they were never                   again       accep-
ted by the Government                       for use on our contract.                            The comment                that      they were not
returned         so as not to give                    Bristol        an excuse            for delays               is obviously              beyond        a
tongue-in-cheek                remark.,           It is a distortion                    of the facts                 as determined               by other
Government           personnel            and indicative               of the incompetence                        of the Army's                civilian
personnel          gage engineers.                    These same engineers                      were never               able      to demonstrate
the suitability                of the gages for determining                               interchangability.                         At one particular
meeting        at our plant               where three             Government            attorneys,              four       or five         Government
engineers,           and two contracting                      officers         were present,                 four        randomly          selected          Mem-
car radios,            requisitioned                from Sacramento                Army Depot,               were tested               on the gages.
The Memcor radios                  met all          specifications,                 but the modules                    failed        the electrical
gage requirements.                      It was determined,                    however,          that       Bristol           Electronics              had true
interchangability                  of all         modules.            Based on these                 findings,             and other           tests       and
observations,              the Government                 elected         to negotiate               our claim.                Almost        19 months
were consumed              for this           evaluation            during        which       time Bristol                 was driven             to the
brink       of bankruptcy.                   Our banks refused                  to extend            credit          beyond        the $600,000.00
limit       due to the delay                  of Government               settlement            and all            progress          payments          were
exhausted.             Prior       to this,           we had credit               of over a million                      dollars         with       the bank.
Only our management                     skill        kept the company                 in operation.                    It is also interesting
to note that              Fort     Monmouth           never       corrected           the gage specifications                            and has passed
this      problem        on to another                 contractor.              I repeat           that       the Government's                    gage per-
sonnel        never       proved        or demonstrated                 the suitability                  of the gages,                 but offered
voluminous           verbal         criticism.

After   final      settlement         of the claim       for $1.4 million,              two additional             months
elapsed     before       the funds        were dispersed.            Of this     amount,       Bristol        received      in
one payment        about      $300,000.00.          Our trade        payables      alone     were over $500,000.00
and were aged as much as six months.                         Bristol       was not satisfied              with     the Govern-
ment's    offer     of settlement,              but it had to be accepted,                or terminate           operations
of the company.             Surely      it can be seen that             this   impact,       and the yet to come rip-
ple effect,        destroyed         any semblance       of production           planning       for a period            of time.
Never   once did our quality                 fall   down and we continue              to enjoy         the knowledge          that
we alone      had the highest             quality     of all    manufacturers.              From my observations                of
one competitor's            product,        I know for a fact           that   they do not use gages as desired




                                                                               67
APPENDIX IX
    Page 6
 by the Army. We are privy to the knowledge           that   the defective      gages Eristol
 received   were those        rejected by Memcor and never   repaired     by the Government.
 These defective        gages were given   to us as a means of acceptance        of our product.
 The record     clearly     shows the damage caused  by this    action   of Fort Monmouth's
 gage engineering        personnel.

 For the reasons            previously       cited,      I must ask for a correction                   of the last         sen-
 tence     on page 23.            The Government,         through         its various      contract        modifications
 admitted       that    its     actions     caused     delays.         As previously         noted,      it is not a fair
 statement        to cite       the original        contract        delivery     date when the Government                  or-
 dered     changes      that      could   not be performed              in the original         period.         Bristol's
 statement        about     the lack of lead time is correct.                       After     the impact          of FEB-7
 which     proved     to be ill-conceived,               Bristol       was forced       to produce         radios       in the
 same month that            delivery      was required,           leaving     no room to overcome               normally
 expected      vendor       defaults      or material         transportation          problems.

 In    reference          to the imposed                condition         of Mandatory            A inspection             cited      on page
 25,     I believe          it necessary              to supplement             the statements             cited.          The reference
  to "Statistical              Sampling           Inspection’ is not unique to this contract                                       but is in-
  herent      in all        Government            contracts          in the same or similar                    form.         In the instant
  case,     a formally           advertised             bid was offered               by the Government.                   In formulating
 our price,           it is incumbent                 on all       bidders        to draw upon their                 experience           on pre-
 vious      contracts.             Our plant            is approved           and always          operated          under      Specification
 MIL-I-45208            governing           inspection           systems.           We know the extent                 of normal          Govern-
 ment inspection               is to insure               compliance         with       MIL-I-45208          and apply           the principles
 of MIL-S-I’D-105. If then deemed necessary,                                        additional          inspection           by the Govern-
 ment is imposed.                  This       occurs        if the contractor's                 quality         is below normal.                With
  the lack        of any special                citations          in the bid papers,                we could          reasonably          assume
 that     the proposed             contract           would      be conducted             in a similar            fashion.           However,
 almost       immediately            after        award,       at a post-award               conference           at our plant,            we were
 verbally         informed         that       the Government              would       impose      the so-called              Mandatory        A
 requirements             on the Government's                    Quality        Control        personnel.            If this was known
 to be a requirement                   so soon after               award,       why was it not cited                   in the bid set?
 The ASPR specifically                     forbids         sharp       buying       practices        of Government               personnel.
 After      the announcement,                   the Government              could       have required             Bristol        to furnish
 hundreds        of thousands              of dollars            of test        equipment         and literally              thousands        of
 square       feet      of test        area.          It was for this reason that we believed                                    that    a change
 in scope was set forth                       at the post-award                 conference          and Bristol            requested         addi-
 tional       compensation.                It is our opinion                  that     Bristol       would        have persevered             at a
 formal       hearing         before       the ASBCA.

 I   have previously         discussed      the matter     of electrical            gages.    Bristol      proved     that
 its    engineering       approach     to the matter       of interchangability              was sound and if
 adopted      by the Government,          would   result     in 100% internchangability                 of modules,
 regardless         of the source      of manufacture.            A radio      operator    in combat       conditions
 could     replace     a defective       module,    merely     by plugging          it in with     no additional
 alignment        and then have a radio          meeting     full     specification        requirements.           The
                                                                                    APPENDIX IX
                                                                                        Page 7
Government's own gage engineer's, including           the very man responsible    for their
acceptance,   witnessed this demonstration         but refused to accept the results.
The Gavernment still       retains    gages that accept defective   modules, also demon-
strated,   and have electrical        parameters that have, in most part, no bearing to
the actual functioning        of the module in the radio.      An exact parallel     to this
situation   is to attempt to measure a yardstick          with a meterstick.     This is not
possible as two distinct         systems of measurement are involved.        Our contention
concerning the unsuitability          of the design of the gages can be corroborated         by
the radio design engineer at Fort Monmouth's engineering             laboratory.     There are
in existence,    technical     documents that show that Bristol      constructed    special
modules, with known defects,          and demonstrated that the gages would accept these
defective   modules as spare parts.         The Government's reply to this incongruous
situation   was that we should be more careful.           This is a clear disregard      of the
technical   problem and showed a disinterest          on the part of the gage engineers to
assure proper equipment for our combat forces.

On page 27, the report states that Army personnel still                maintain     that the radio
is too sophisticated       for Bristol    to produce.   Our defense, if one is necessary,
is to indicate    that we successfully       delivered  over 10,000 radios.             I submit that
the Army's gage engineers lack the technical           ability     and engineering        talent   and
as a result,   millions     of dollars    have been spent for spare parts with absolutely
no concrete assurance that the spare parts will             properly     function     in the field.
In fine, he established        gage design and limits     that are erroneous,           and could
never defend his contention        by actual demonstration       to either      Bristol's     or the
Army's legal personnel.         To this very day, Bristol       delivers     two types of modules.
For the spare parts contracts          we have, we submit for acceptance, modules that
pass the electrical       gages.   For the radio contract,       we submit modules that re-
sult in perfect      radio performance and do not necessarily            pass the Government
gages.

In line with the preceeding statements,               I should like to refer to page 29 of
the draft,     It is stated therein that the Army's trial                attorney    asked the gage
engineer for evidence to refute Bristol's                contention.     Apparently,     he stated
that this request was unreasonable.              Why did the engineer consider it unreason-
able to prove his many statements ? Surely,                if the other manufacturers         had, in
fact,   used electrical     gages without difficulty,            a wealth of documentary evidence
was available     for presentation      to the trial       attorney.     Surely,    that statement to
the trial   attorney     was entirely,     in itself,      untrue, for if it caused the Army to
pay over $1 million,       he should have refuted our contention               with something other
than idle words.        Yes, the drawings indicate           that certain    modules are tunable,
but that is not the point in question.                The gages, as acceptance devices,          should
accept modules from acceptable          radios.       That is the function        of a gage. Anything
short of that proves the unworthiness             of the gage design.          In addition,    he never
proved our lack of production          know-how.       It is these unsubstantiated,         unprofes-
sional types of verbal statements            that cause our Government            to spend millions
in wasted dollars.




                                                    69
M3'EMDIX IX
         Page         8

  Page 30, second         paragraph,          again      states      the gage engineer's               position                   that    the
  gages are a compromise              with      cost.        The AN/PRC-25          Program       represents                    an invest-
  ment by the Government              in hundreds            of millions        of dollars.            How is                 it possible
  that     he compromised        in cost       when lives           and millions          of dollars        are               at stake?
  The spare      part   units      should       function        without     adjustment,          for during                     combat,
  tools      and time may not be available.                      The radio        is a vital         part     of              our military
  operation      and costs      should        not be a controlling                factor       where lives                    are at stake.
  I suggest      his cost     consciousness              is a hindsight           reflection         to cloud                   an erroneous
  gage design       of his own doing.                 I emphatically          refute        his statements                      concerning
  elimination       of the gages to preclude                    our request         for delays,         as the                  gages were
  removed,      never   to be reinstituted                 in production          as other       Government                     personnel
  at DCASR never        accepted        their      use.

 On page 35, concerning            the most recent    award to Bristol,              the gage requirement
 again     is cited.       It is again appropriate       to mention         that     an independent       govern-
 ment test      performed     on four   Memcor radios      refute     the fact         that   Memcor's    modules
 pass the gage requirements.             The fact   that     their    radio      price      is much higher      than
 Bristol's      could     be a logical   conclusion    that      they   retune       the modules,      but absorb
 the cost.

  I have,      in the preceeding        discussion,                   written          about  the draft's                constant      ref-
  erence     to a two-year      delinquency.                       I believe,          in the light     of           this    discussion,
  this   statement     should    be revised.

  Page 37 makes reference       to an Industrial          Engineering       survey     of our                                 capability.
  I have no knowledge     of any Government           Industrial      Engineer     visiting                                   our plant.
  However,  in view of our monthly         deliveries         on the add-on       contract,                                   his obser-
  vations  and findings     are questionable.

  Page 39 cites            our technical               delinquency            to the add-on            quantity.            The facts          show
  that    this      delinquency            was attributable                to the unavailability                    of certain           sole
  source      components.               In one particular                case in December                1969, our supplier                  of
 a sole       source       transistor            failed       to conform            to QPL specifications                   and military
 specifications              and could           not deliver           transistors             to meet our needs.                    Due to
 help given           to Memcor by Bristol                    to enable           them to meet their               delivery           require-
 ments      by supplying             initial         components          during         the period         1967-1968,            in order
 that     Memcor could             deliver         their      much needed             AN/PRC-25        Radio      Set to the combat
 forces       in South         Vietnam          (See Exhibit           1) Bristol,             in its      persistence             to meet
 the schedule,             sought        and received             in November             1969,     the loan of 1,000 RCA
 2N1493 transisotrs                  from Memcor.               The DCASR QAR, Mr. Brown,                       would       not permit
 the use of these                transistors             from Memcor until                 Bristol       received         certification
 from Memcor that                these       transistors            were not scrap               and met the Government                    speci-
 fications.             This     was accomplished                in December              1969 and Bristol             put them imme-
 diately        into     production            thereby        reducing          the delay that would                  have occurred              due
 to the failure              of RCA to meet its QPL requirements.                                     Due to loss of lead time
 caused      by failure            of RCA sole             Government           source       transistors          and other           Government
 imposed        requirements,              Bristol,with             tenacity          and perseverance,with                  the use of
 Memcor's         supply       of RCA's sole               source      transistors             went into        production            and
 delivered          PRC-25         in January            1970. By the end of February,                            Bristol          had over-
 come the less             of necessary              lead time.             During        March 1970, Bristol                produced          and
 delivered          800 radios           and in April,              702 radios.              In the first          15 days of May, we
 have submitted              to the Government,                   five      lots      (450 radios)          and arlticipate              the
 production          of a minimum              of 450 more radios                   by the end of the month.                         We shall
 endeavor         to complete            the add-on           contract          by the end of June &spite                          the various




                                                                        70
                                                                                                                   APPENDIX IX
                                                                                                                       Page 9

sole     source      items    and without          receiving       a justified          roll-back          schedule.         A
casual      examination         of the above production                 will      show that        Bristol's         planned
production         of this      add-on      quantity       would     have been met,             as was Bristol's             in-
tention,        from a month         to six weeks ahead of contractual                          schedule.          In the
entire      history       of the AN/PRC-25            Program,       a vital        component       of our military
effort,       no attempt        was made by the Government                    to specify         a substitute           compo-
nent     or to establish           alternate         sources     through        preparedness          contracts.           In case
of a national           emergency,        the need for this             radio      would      increase,        but production
by any company           would     be limited         and hindered           by these       sole    source       items.        Bris-
tol's     engineering         group,      on its own, studied                one component,           and is in the process
of evaluating           a new type of transistor                 that     could      be used interchangably                  with    the
present       one.

Exhibit    A should           be corrected         to reflect        that     Mr.    Gaffney      has    had    a financial
investment    since           1962 and not         1965.

Exhibit    B        is the Comptroller's            answer   to a protest         by       Model Engineering            and Manu-
facturing           Corporation,       now known as Memcor.              A recent          Senate      hearing,      given  wide
publicity           in The Wall Street           Journal,    brought      out the          fact    that     at the time Memcor
protested           our award,      they themselves         were experiencing                technical        and financial
problems.             Our engineering         group    is much smaller        than         Memcor's       but we solved      all
the technical             problems     without      outside    assistance       and        did not have extraordinary
relief.

I should     like      to conclude     my comments   by stating       my thoughts,       as the president
of a small        business,     concerning   The Small      Business    Administration.            The fact   that
Bristol     has remained        in business   as a prime manufacturer             is attributable,         in many
respects,       to the SBA.        We have found   the SBA to be very thorough                and comprehensive
during    the period        of evaluating    an application        for a Certificate          of Competency.

Years     ago, there        were denials        of our application              as well     as acceptances.                Upon
receipt       of the contract,           they have always          continued        to render        assistance          in many
forms.        They have organized             meetings      so that     Bristol       and the Contracting               Agency
could     mitigate      its    problems.        They have offered            contractual         guidance,         suggested
new suppliers         for various          components,       and helped         expedite     distant        delinquent
suppliers        by contracting          other     regional     SBA offices.            They are truly           concerned
about     small    businesses        and have proven          to be an effective             organization            that     has
carried       out the mandate         of Congress.

May I request,        Mr. Hammond,  that  we arrange     a meeting    between    yourself                                  and Bristol
after     you have reviewed     our comments?     I believe     we can document       all                            the      statements
contained     herein.     Thank you for the opportunity         to review     the draft.

Very      truly      yours

BRISTOL           ELECTRONICS,       INC.




   /-t&C%/&<*
Stanley
President
                  A Revzin


SAR/dcl




                                                                      71
APPENDIX      IX
    Page      10

  EXHIBIT 1




  PARTIAL RECORDOF MATERIAL LOANEQTO MEMCORBY BRISTOL TO ENABLE MEMCORTO
                               MEET THEIR SCHEDULE




  DATE             DESCRIPTION           PART NO    QUANTITY   NORMAL LEAD TIME


  318167           Tip     Jack          447671-3   1000 ea    8 weeks

  7/15/67          Housing        Assy   447219     1000 ea    5 months

  10/27/68         Antenna Assy          447102     1000 ea    5 months

  lo/67            Coils                            1000 ea    4 months

  11/67            Coils                            1000 ea    4 months

  6126168          Antenna               AT/892     1000 ea    3 months

  5/24/68          PR Brd (kdoor)        447735     1000 ea    3 months

  9/68             Hinge                 447121-l   1000 ea    4 months




                                             72
                                                                                           APPENDIX X
                                                                                              Page 1

                                                       U.S.   GOVERNMENT
                                             SMALL BUSINESS ADMINISTRATION
                                                  WASHINGTON, D.C. 20416
OFFICE   OF   THE   ADMINISTRATOR




                    JUN 5 1970


                    Mr. Henry Eschwege
                    Associate   Director
                    United States General Accounting                  Office
                    Washington,    D. C. 20548

                    Dear Mr. Eschwege:

                    Your letter   of April 21, 1970, requested our review and comments
                    on a draft   of your proposed report regarding    the procurement of
                    AN/PRC-25 radio sets by the Department of the Army from Bristol
                    Electronics,    Inc. (Bristol), New Bedford,   Massachusetts.

                    The information       contained    in the draft     report,   insofar     as it
                    pertains     to the Small Business Administration,            is substantially
                    the same as that contained           in our files.      On July 28, 1965, SBA
                    certified      to the contracting      officer   that Bristol     was competent,
                    as to capacity       and credit,     to perform the proposed procurement.
                    As indicated       on page 11 and in Exhibit        B of the draft       report,
                    your office      reviewed our file      and issued Decision No. B-156971,
                    August 23, 1965, denying a protest             against the issuance of the
                    Certificate      of Competency (COC) in this case.            The decision
                    further     held, consistent      with prior    decisions,    that the issuance
                    by SBA of a COC is conclusive           on the contracting       officer     with
                    respect to a small business bidder's              capacity  and credit       to per-
                    form a specific       Government contract.         Your subsequent decisions
                    have upheld this rule.           In Decision No. B-167654, dated
                    January 19, 1970, you stated:

                                "Should SBA issue a Certificate        of Competency (COC) to
                                a concern, the contracting     officer    must accept the COC
                                as conclusive  of that concern's       capacity,  regardless   of
                                his views or those of any other activity,         on the matter.
                                38 Comp. Gen. 864 (1959); 37 Comp. Gen. 798 (ly58)."
                     Our decision     to issue a COC in this case was based upon a thorough
                     investigation      and evaluation   of all facts available   to us bearing
                     on Bristol's     capacity   and credit.    Our judgment in issuing a COC
                     to Bristol     in this case appears to have been corroborated      by the
                     following     subsequent events:

                                                                 73
APPENDIX
      x
   Page 2

         {a)       Substantial      performance   of the contract   by Bristol
                   (draft   report,     page 23).

         (b)       Excusable delays by Bristol     in the performance    of
                   the contract  culm%nating in settlement      by the Army
                   of Bristolrs  claim for additional     costs incurred
                   by reason thereof,   in the amount of $1.4 million,
                   in April 1969 {draft    report,   page 33).

         (c)       Award by the Army of a new contract       in July 1969
                   to Bristol   for an additional     4,373 radios without
                   referral   to SBA (draft   report,   page 11).

   Thank you for the opportunity  afforded             us of reviewing     the draft
   report and submitting  our comments.

   Sincerely,




   Administrator




                                             74
                                                                                 APPENDIX XI
                                                                                          Page 1

                                        HEADQUARTERS
                                  DEPARTMENT   OF THE ARMY
                          OFFICE    OF THE ASSISTANT              SECRETARY
                                           WASHINGTON.     Q.C.


                                                                                 22 JUN 1970


Mr. C.M. Bailey
Director,  Defense Division
US General Accounting Office
Washington, D.C. 20548


Dear Mr. Bailey:
        This is in response to your letter                  of 23. Aprillg'70,       to the
Seeredazy of Defense requesting                 come&s        on your draf% report        titled
Tmh~       of   the procure*          0f     AN/PIX-~~Radio           sets m331 Bristol       Elec-

tronics,     Inc.,    l&w Bedford, Massachusetts"                 (OSD Case sill),
        The Depmtment of the m                  position      with respect to the report
is inclosed,         This reply     is made on behalf             of the Department of De-
fense.
                                                  Sincerely       yours,




lUt?l
  Position      Statement




                                                   75
APPENDIX XI
    Tzge 2
                                      OF THE ARMYPCSITION
                             DEPARTXEhT
                                           ON

                  GAO (DRAFT) l%?G,RTGAOPP-273, DATEDAPRIL 1970
  REVIE>JOF THE PROCLJHZXENTOF AN/PRC-25 RADIO SETSFR34 BRISTOLELECTRONICS,
                       INC.. NEWH~DFGRD,MASSACHUSETTS

                                    (OSD CASE#3111)

  I.     POSITION SUXURIES.
        A.   GAOPosition     Summary.

           In discussing the first award to Bristol,     GAO contends that Bristol did
  not have the production capacity or the financial capability         to insure proper
  performance on the contract.        Despite the Army's initial  rejection of the
  Bristol bid as nonresponsible, the Small Business Administration          issued a
  certificate      of competenoy without further formal objections from the Army.
  GAObelieves that the settlement of the Bristol claim at $1.4 million was
  questionable as the government negotiators could not establish a relationship
  between the amounts claimed and the actual c'osts incurred for the matters in
  dispute..     Tine Army Should not have awarded Bristol an additional quantity of
  4,373 radio sets because of Bristol's poor performance in the past and
  uncertain finsnzial      position.   On,the new contract, the Army should not have
  waived test gauge requirements for the proposal solicited        from Bristol while
  still    requiring it for the other two producers.
        B.   Armv Position    Summare.
         Tne Army concurs with the GAOfindings.   The Army nonconcurs with the
  GAOconclusions.    The rationale for the nonconcurrences is explained in
  paragraph IV below.
  II.   LB1CKCRXlNDI??R ARMYPOSITION.
                                 -
           In this, as in all award situations,   selection of the,contractor  is
  a complex process involving the judicious evaluation of many factors.        Tnis
  selection     included consideration of the Small Business Program 11swell as
  the need to be supply responsive.      The Array deferred to the SBA judgment
  that Bristol could perform satisfactorily     on the award, as a responsible
  contractor within the meaning of the regulations.
          For the second (add-on) award, the Army's judgment was based on
  Bristol's   improved performance and financial condition.   The second award
  ie likewise illustrative    of the principle that each award must be decided
  on its own morits, with due consideration to the circumstances at the time
  of award.




                                          76
                                   ,                                       APPENDIX XI
                                                              L 1.,_
                                                                               Page 3

HEPORTGAO PP-273
HEVIEH 31' Ti1E PROCURE~HTOF AN/l'RC-25 RADIO SETSFMM BRISTOLELECTIVJNICS,
INC., NEWE?ED3ORD,  MASSACHUSETTS

      Procurement off&n&     can only be expected to use their best judgment
based upon the circ?umstances of each case at the time the award decision is
made.
III.   ARMYPOSITION ON cno
                       -- FINDINGS.
          The Army concurs with the findings that: (i) it discontinued its efforts
to get the Small Businoss Administration       to withdraw Bristol's     Certificate     of
Competency; (ii) the adverse factors cited in the Army's preaward survey could
have contributed     to Bristol's  performance difficulties;     (iii) Bristol's     claim
was settled by mutual agreement without establishing a relationship             between the
amounts claimed and the alleged causes thereof;              it waived the gauge require-
mant only for Bristol;      and (v) it determined that Bristol was capable of
fulfilling     its commitments under the second award.

IV*    ARMYPOSITION ON GAOCONCLUSIONS.
       ---
        The Army nonconcurs with the GAOconclusions that: (i.) the settlemsnt
of the Bristol claim was not proper; (ii) if the test gauge requirement was waived
for Bristol,    it should have been waived for all suppliers, and (iii)    because
of Bristol's    performsncs on the prior contract and its uncertain financial
position,    the Army should not have awarded another contract to Bristol.     The
following comments ara provided in support of the nonconcurrences:

        a. (Improper settlement)     The audit report accurately describes the
mnner in which the amount of the contractor's        claim was established.    It
confirms the fact that Bristol's     records were kept on a total cost basis
which did not permit the allocation of costs to specific problem areas. The
GAOauditors do not allege that the contractor's         costs ware unreasonable,
nor do they allege that the settlement was unfair or unreasonable.          The Court
of Claims and the Armed Services Board of Contract Appeals have held that an
eqtitable    adjustment of a claim may be made in the manner which was used here
when (i) there is no more reliable method for computing damages because the
contractorls     accounting system is not structured so as to permit costs to be
allocated to specific claims; (ii) th e contractor's        actual costs are found to
be ressokble;      and (iii) the evidence is sufficient     to allow a fair and
reasonable approximation.
       b. (1) (Waiver of gauge requirement)    The Army's procurement plan for
the second contract awarded to Bristol congidered the fully competitive
procurement of these requirements in accordance with the latest technical
data including the use of electrical   gauges. However, the urgency of the
requirement (UMMIPSPriority   02 in direct support of SEA) precluded this
approach. The delivery requirements would not permit the lead times
necessary to accomplish the procurement under these conditions.    Therefore,




                                            77
APPENDIX XI
    Page 4
REPORTC.20 ?P-2'73
IE\rlEW OF THE YROCURH?NTOF AN/PRC-25 RAIIIO SETS FRCMBRISTDL ELECTRORICS,
INC.) NEWBED~W;IU,MASSACtlUSE'l'TS
a decision was made to procure the requiraments by IS mIf,ed negotiations among
currant  and previous producers on the basis of obtaining equipzent identicai
to that previously produced by each manufacturer.       It was agreed that the
radios produced by all three suppliers were operationally      and logistically
interchangeable and technically  equivalent with each other.
        (2) The test gauge requireme'nt was deleted from the Bristol solicitation
to permit Bristol to bid, thereby broadening the competitive base. Since the
gauges impose3 no problem for the other two bidders, it was felt that inclusion
of the gauge requirement would have a negligible price impact and should
therefore be retained.   In the event the bid prices were extrenely close
between Bristol and either of the other,two bidders, the contracting officer
had the option of deleting the requirement for gauges for the other bidders.
         c. (1) (Impropriety of Second Award to Bristol)         During the period
October 1968 through Ymy 1969, Bristol delivered 3,098 units and built up a
cumulative total of 62 units in Group "C" test for a total of 3,160 radio sets
actually produced as against the proposed schedule of 3,510. Tne 350 unit
deficit    was caused by work stoppsge in Earth 1969 due to the financial strain
experienced by Bristol immediately prior to the government's 1.4 million dollar
settlement.      This performance was conside-red in determining whether Bristol
should be included in the sources to be solicited under the new procurement
action.     Partic*dar attention was given to the fact that from January through
May 1969Bristol produced on an alt&nating           basis 6 and 7 lots of 93 units each
month in strict      accordance with its promised delivery schedule (discounting
Harch production in light of the work stoppage).          This production demonstrated
Bristol's    capability    to produce 540/630 units per month on a single shift
operation an.3 convinced contract officials       that Bristol should be considered
in the competition for the second award. On the new procurement it was
expected that some amount of multi-shift       operation would he used to meet the
delivery requirement regardless of which firm reoeiwd the award.
        (2) In discussing the second contract award, GAOreferred to an Electronic
CommandIndustrial     Engineerin, e evaluation of Bristol's capabilities  contained
in a memorandumdated 27 June 1969. GAOindicated that contracting officials
"chose to ignor" 3" this evaluation.     This evaluation did not allow for Bristol's
expanding its production line by hirin, = additional poople or by using an
addition21 production work shift.       For this reason, the contracting officials
could not adopt this evaluation as their own. This is not a case of ignoring
the Industrial   Engineering evaluation but rather of making an assessment based
upon all the information at hand, including that contained in the Industrial
Engineering Report of 29 January 1968. Another consideration was that the
contractor had the ability     to produce approximately 500 units per month with




                                          78
                                                                  APPENDIX XI
                                                                      Page 5

RWORT GAOPP-273
REVIEWOF TiIE PROCURI$lENT
                         OF AN/PRC-25 RADIO SETSFROM BRISTOLIXECTii~~~ICS,
INC., NEWBEDFORD,MASSRCUISFTTS
                     1
a one shift production operation.  It was reasonable to assune that with a two
shift operation the contractor could produce at least 630 units per month.
       d. (1) GAOreferred to an AC0 Report dated I4 May 1969which stated
that Bristol's  financial position was precarious.  The precarious financial
position referenced by the AC0 was relieved shortly thereafter by the payment
of the claim settlement,
        (2) The 28 June 1969US.AECOM preawsrd qualification  survey found the
contractor financially  incapable because of a projected deficit cash position
from 15 August 1969through 15 October 1969. All data in evidence at that
time indicated that subsequent to 15 October 1969 the contractor's   cash
position would be more than adequate. This period of cash shortages from
15 August 1969 through 15 October 1969was considered to be a critical two
months as it was determined that a significant  amount of materials had to be
purchased during those months to meet the deliuery requirements of the then-
proposed award.
        (3) The 10 July 1969 evaluation found the contractor financially   capable
because data was presented by the contractor which resolved, to the Army's
satisfaction,  the problem outlined in the 38 June 1969evaluation.      GAO
mentions only two of the three basic reasons why the Army reversed its
position of financial   capability.   The third reason was that Bristol would
only need minimum purohases of material to complete the then current AN/PRC-25
contract an3. several spares contracts.
        (4) GAOstates on Page 39 - "ws believe serious. doubt exists as to
whether the add-on award should have been made to Bristol in view of delays
experienced in the past coupled with Bristol's   current production and
financial uncertainties".   With regard to Bristol's   production experience,
it should be noted that Bristol completed delivery of the balance of 2,494
units on time in the basic contract, falling behind only 150 units in
September 1969 and curing this deficit    in November 1969. As of this writing
the Army is not aware of "current financial uncertainties".      Referring to
the two aforementioned Army evaluations (dated 28 June and 10 July 1969) the
contractor liquidated all bank indebtedness by September 1969 and has been
operating without bank support since that time. In a preaward survey dated
6 March 1970, the financial analyst of ECASR-Boston reported that: (i) the
contractor had in excess of $400,000 on deposit at its bank, (ii) Dun &
Bradstreet reports the company has met its trade (vendor) invoices promptly
in recent months and (iii)  the contractor prepared a Cash Flow sheet,
accompanied by considerable back-up data verified by its CPA, indicating no




                                        79
APPENDIX XI
    Page 6

;:2IIS\J OY 1’ilE I’XXXJiNZX’l’ OF AEI’/I’RC-25 RfiDIO SJXS Bfi%l SRIST~L ELECTI~~HICS,
   I . , MN l3E1)I’T)Iw, iamxI1IJSErrS

nCCd fO1. bJrro;KxI fl2ntlS LeEOre April 1971.  It is considered that
Bristol was financially     cap.C& at that point in time (July 1767) for purposes
of the propoded nvard, In rotrospact,      the Army is not aware of any doxIo;xent
which would sugGcst that its 10 July 1767 finding of financial capsbility      was
improper.
       e. At the time the contract 'for the add-on qunntity was being considered,
the production difficulties     and financial problems had been rasolved leaving
no barrier to a Bristol award. GAO' a comment relative to Bristol's       delinquency
on
me the  add-on quantity    cannot be  related to the Preaward Evaluation,



V.     ARK’ FOSTTIOIJ
               r---L--,,LOr’ G!O PFC9i~;i~!‘l7.!;‘~ITJO?,TS.
       There are no recommendations in the draft               audit report.




                                                                               U.S. GAO Wssh.,D.C.



                                                   80