Commercial Energies, Inc. No. 3403 (January 17, 1991)
Docket No. SIC-90-12-10-153



                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                     WASHINGTON, D.C. 20416


SIC APPEAL OF:                )
                              )
Commercial Energies, Inc.     )
                              )
     Appellant                )    Docket No.SIC-90-12-10-153
                              )
Solicitation No.              )
DLA600-91-R-0016              )
Defense Fuel Supply Center    )
Cameron Station               )
Alexandria, Virginia          )

                                
                             DIGEST

A firm that does not submit an offer on a solicitation because it
cannot comply with the Walsh-Healey Act requirements contained
therein, does not have standing to appeal the Standard Industrial
classification code assigned by the Contracting Officer.

                            DECISION
                                
                        January 17, 1991

WHITE, Administrative Judge, Presiding:

Jurisdiction

This decision is rendered pursuant to the provisions of the Small
Business Act of 1958, 15 U.S.C. 631 et sea., and the regulations
codified at 13 CFR Part 121.

Issue

Does Commercial Energies, Inc. have standing to file this appeal?


Facts

On November 30, 1990, the Defense Fuel Supply Center, Cameron
Station, Alexandria, Virginia, issued the above-referenced
solicitation (RFP) for "direct supply natural gas." */ The
solicitation was a total small business set-aside with a size
standard of 500 employees or less under Standard Industrial
Classification (SIC) code 1311 (Crude Petroleum and Natural Gas).
Proposals were due on January 7, 1991.

On December 10, 1990, this Office received a timely Notice of
Appeal of the Contracting Officer's SIC code designation from
counsel for Commercial Energies, Inc. (Appellant), a small r
disadvantaged business (SDB) concern. On December 26, 1990, the
record closing date, the Appellant also filed a "Signed Statement
of Commercial Energies, Inc." The Appellant contends that the
Contracting Officer should have included SIC code 4924 (Natural
Gas Distribution), which also has a 500 employees or less size
standard. In other words, the Appellant wants the solicitation to
be issued under both SIC codes.

The Appellant also states that in its two previous solicitations,
one issued in May of 1989 and the other in September of 1989, the
Contracting Officer designated SIC codes 1311 and 4924 for the
first and only SIC code 1311 for the second. It is this deletion
of SIC code 4924 from the present solicitation that the Appellant
now objects to. By the deletion of SIC code 4924, the Contracting
Officer allegedly acted to exclude SDB and 8(a)firms that are
marketers of natural gas from consideration.

In support of its position, the Appellant cites 55 Federal
Register 45342, published on October 29, 1990, and 53 Federal
Register 47663, published on November 25, 1988. Both pertain to
small business size standards for natural gas distribution. The
Appellant also alleges that the statement in a letter from Erline
Patrick, SBA's Acting Associate Administrator, Minority Small
Business & Capital Ownership Development, that firms under SIC
code 4924 "do not have to comply with the definition of regular
dealers provided in Walsh Healey Public Contracts Act" is further
evidence that the Contracting officer is precluded from excluding
this SIC code from this solicitation.

The Appellant states that, due to the omission of SIC code 4924,
"Commercial Energies is prevented from submitting an offer under
this RFP." However, it also states that it is an interested
party. We are requested by the Appellant to grant the following:

     Under this SIC code appeal, Commercial Energies seeks (a) a
     determination that the Competition in Contracting Act, which
     requires full and fair participation by all available firms
     to the widest extent feasible, is applicable to this
     procurement, and (b) confirmation that the SBA
     determination, reflected at 55 FR 45342, (October 29, 1990)
     and 53 FR 47663 (November 25, 1988), regarding SDB
     "marketers" of natural gas to the Federal Government
     controls procurement actions involving small business firms,
     especially as here under a small business set-aside, and (c)
     as a result, the contracting officer errored [sic] in
     excluding SIC code 4924 from the solicitation to acquire
     both the product, natural gas, and the transportation of the
     product.

We are also asked by the Appellant to:

     set the matter for appropriate proceedings, by telephone or
     in person, necessary to create a record and issue a decision
     that (i) the failure to include SIC code 4924 in a
     solicitation for the acquisition of natural gas by DFSC or
     other federal contracting activity is improper, and (ii) the
     RFP and all future solicitations for the acquisition of
     direct supply natural gas, unless otherwise determined by
     SBA, must include SIC code 4924.

The Statement of Work (SOW) for this solicitation states that:

     (a) The United States Government is seeking alternate
     sources of natural gas for six (6) Department of Defense
     (DoD) installations and/or Federal Civilian Agencies located
     in Texas, Louisiana, Oklahoma, New Mexico & Arkansas as
     specified in the schedule.

     (b) The purpose of this procurement is to reduce annual
     purchased natural gas costs for the Government by purchasing
     direct supply natural gas supplies. Direct supply natural
     gas is defined as natural gas generally purchased on a
     competitive basis directly from producers or other sources
     as a commodity. This procurement is part of the new mission
     assigned to the Defense Fuel Supply Center (DFSC); DFSC's
     primary goal of centralized acquisition of direct supply
     natural gas is to provide a reliable source of gas at the
     lowest cost to Government agencies and installations.

     (c) Notwithstanding the Government's desire to secure lower
     cost natural gas, this procurement is being conducted in the
     context of important national defense and Federal civilian
     agency functions performed by these DoD installations and
     Federal civilian agencies.  Energy reliability resulting
     from a secure and reliable source of supply is critical to
     mission accomplishment.

     (d) The Contractor shall furnish all labor, tools,
     requipment, and incidentals to supply and deliver direct
     supply natural gas to the Local Distribution Company (LDC)
     Citygates and/or pipeline connection points stated in
     Section B of the Schedule..
     
Attached to the solicitation is DD Form 1707, Information to
Offerors or Quoters, which states that:

     d. In accordance with the statutory requirements of the
     Walsh-Healey Public Contracts Act, the contract(s)entered
     into as a  result of this solicitation shall be with
     Manufacturers/producers or regular dealers in the Natural
     Gas Industry. In accordance with 41 CFR Section 50-
     201.101(a)(2), a regular dealer is a person who owns,
     operates, or maintains a store, warehouse, or other
     establishment in which the materials, supplies, articles, or
     equipment of the general character described by the
     specifications and required under the contract are bought,
     kept in stock, and sold to the public in the usual course of
     business.

This Office received a response to the appeal from the ontracting
Officer on December 26, 1990. The Contracting Officer contends
that the Appellant lacks standing to file this appeal as it has
not been adversely affected by the designated SIC code. This
contention is based on the following:

     CEI cannot establish that it has been adversely impacted by
     the Contracting Officer's choice of SIC code for the
     solicitation at issue here because the size standard for the
     SIC code designated by the Contracting Officer and the size
     standard for the SIC code recommended by CEI are the same.
     No matter which SIC code is determined to be applicable to
     the solicitation, CEI's right to submit an offer is
     unimpaired..

     Apparently in an attempt to demonstrate some negative impact
     from the Contracting Officer's SIC code determination-, CEI
     suggests that "Without [SIC code 4924] small disadvantaged
     firms will be eliminated from participation...." (CEI Notice
     of SIC code Appeal dated 10 December 1990). This is
     manifestly untrue since the size standards for SIC codes
     4924 and 1311 are the same....
     
     CEI has indicated that it believes the Contracting Officer's
     choice of SIC code may be relevant in some fashion to the
     applicability of the Walsh-Healey Public Contracts Act
     (Walsh-Healey Act) to the solicitation. Administration of
     the Walsh-Healey Act is a matter within the exclusive
     jurisdiction of the Department of Labor. It is not a matter
     over which OHA has cognizance. Size Appeal of Columbia
     Surgical Instrument Corp., No. 2009 (1984).

The Contracting Officer also submits that the appeal should be
denied on the merits. She states that:

     Prior to 1978, the natural gas industry was controlled by
     Federal, state, and/or local law. Natural gas was provided
     as a public utility service. Gas consumers, such as Federal
     Government installations, purchased natural gas from local
     utility companies, known as "local distribution companies"
     (LDCs), under provisions of utility services contracts. The
     LDCs, in turn, purchased the natural gas from interstate
     pipeline companies. The interstate pipeline companies
     purchased gas under a regulated price structure from gas
     producers at the wellhead.

The Contracting Officer continues with a history of natural gas
deregulation from 1978 to the present. She then submits that:

     To capitalize on the savings that could accrue from
     procuring deregulated, open market gas, the Assistant
     Secretary of Defense for Production and Logistics, by
     Memorandum dated 21 September 1989, assigned the centralized
     responsibility for the procurement of direct supply natural
     gas to the Defense Logistics Agency (DLA). The assignment
     was made as a result of the recommendation of a study
     conducted by the Defense Acquisition Board which found that
     the Department of Defense could achieve monetary savings by
     competitively procuring natural gas directly from suppliers
     rather than from utility companies.

     To implement this initiative, the Defense Fuel Supply Center
     (DFSC), a supply center under the cognizance of DLA, issued
     its first solicitation for direct supply natural gas, DLA600-
     90-R-0126, on 25 May 1990. The solicitation included two SIC
     codes: SIC codes 1311 and 4924.
     
     DFSC issued subsequent natural gas solicitations on 20
     August 1990 (DLA600-90-0151) and 30 November 1990 (DLA600-91-
     R-0016). These solicitations included only one SIC code, SIC
     code 1311. Under each of its natural gas solicitations, DFSC
     sought to purchase gas supplies to be delivered by producers
     and regular dealers via interstate pipeline to the "LDC
     citygate." The "citygate" is the connection point between
     the interstate pipeline company and the LDC. Separate
     utility services (non-DFSC) contracts with the LDC cover
     transportation of gas from the citygate to the using
     activity.

Since natural gas was a new procurement program, the Contracting
Officer wrote to SBA's Size Standards Staff on July 12, 1990,
concerning the appropriate SIC code designation. On August 21,
1990, Gary M. Jackson (Jackson), Director, SBA Size Standards
Staff, responded stating, in part, that:

     Under this rule [13 CFR Part 121.902(b)] it appears that SIC
     code 1311, since it accounts for most of the cost, should be
     applied to these procurements. The other code, SIC code
     4924, mentioned in your letter, does not appear to me to be
     relevant since it is entitled "Natural Gas Distribution" and
     covers the operations of local gas companies (LDC's in your
     letter) after receiving gas at the city gate....

Jackson also pointed out that his opinion was only advisory, as
this Office had final Agency jurisdiction.

The Contracting Officer then states that:

     DFSC had reached conclusions similar to Mr. Jackson's prior
     to issuing its second solicitation and agrees with Mr.
     Jackson's analysis. As Mr. Jackson observed, DFSC is
     primarily purchasing natural gas as a commodity. As a
     subsidiary element DFSC is purchasing transportation from
     the wellhead to the citygate. Natural gas constitutes in
     excess of 2/3 of the value of the procurement, while the
     transportation element accounts for less than 1/3.

The Contracting Officer also wrote to the Department of Labor
(DOL), the agency responsible for administering the Walsh-Healey
Act, on July 2, 1990, asking if the acquisition of deregulated
natural gas was the purchase of a public utility service and,
therefore, exempt from the Walsh-Healey Act, or if it was
purchasing a commodity which is not exempt. On July 24, 1990, the
DOL responded with the following:

     This is in reply to your letter requesting a determination
     as to the applicability of the WalshHealey Public Contracts
     Act (PCA) to competitive procurements for natural gas.

     As you know, PCA applies to Government contracts in excess
     of $10,000 for the manufacture or furnishing of materials,
     supplies, articles, or equipment. Pursuant to 41 CFR 50-
     201.603, however, PCA does not apply to contracts for public
     utility services including electric light and power, water,
     steam, and gas..
     
     Based on the information provided in your letter, the
     contracts at issue involve the "acquisition of deregulated
     natural gas." These purchases will be made from producers of
     or regular dealers in natural gas and not from regulated
     public utility sources. Under these circumstances, we concur
     in your conclusion that because the natural gas suppliers
     are not "otherwise controlled," the public utility services
     exemption does not apply, and these contracts would properly
     be subject to PCA.

A copy of the Comptroller General Decision, No. B-240148, dated
October 19, 1990, was also submitted to this Office by the
Contracting Officer. This decision was rendered as a result of a
protest filed by this Appellant pertaining to the solicitation
for natural gas issued on May 25, 1990, Solicitation No. DLA600
90-R-0126. This solicitation, as previously noted, included both
SIC codes 1311 and 4924. The issues in the case were whether the
Walsh-Healey Act applied to this procurement and whether the
solicitation should have been set aside, apparently exclusively,
for small disadvantaged business (SDB) concerns.
It appears from this case that the offerors on this solicitation
were also informed that the supply of natural gas was considered
the supply of a commodity and that the Walsh-Healey Act would
apply. The Appellant protested, arguing that the Contracting
Officer was required to set aside the solicitation for SDB's
since there was a reasonable expectation that offers could be
obtained from at least two or more responsible SDB concerns. The
procuring activity stated that it had conducted an extensive
market survey and found that there were no SDB concerns "which
would be eligible for award as manufacturers (producers) of or
regular dealers in natural gas as required by the Walsh-Healey
Act."

This Appellant also argued that the Comptroller General should
accord no weight to DOL's interpretation as it had no authority
to determine the applicability of the Walsh-healey Act where the
eligibility of small business concerns is involved. It further
contends that SBA has determined that SDB's and other small
business concerns that supply natural gas are not subject to the
Walsh-Healey Act.

The Comptroller General's response was as follows:

     The Secretary of Labor has primary responsibility for the
     administration of the Walsh-Healey Act. See 41 U.S.C. 38;
     Westbyrd. Inc., 69 Comp. Gen. 238 (1990), 90-1 CPD 159. The
     Secretary has delegated the authority to promulgate
     regulations and issue official rulings and interpretations
     to the Administrator of Labor's Wage and Hour Division. 41
     C.F.R. 50-206.2. SBA, on the other hand, has the more
     limited authority to determine the eligibility of small
     business concerns as manufacturers or regular dealers under
     the WalshHealey Act. See 15 U.S.C. 637(b)(7)(B) (1988); FAR
     22.608 (FAC 84-56).

     CEI has not challenged DLA's statement that CEI is not a
     regular dealer or manufacturer. Thus, CEI's eligibility
     under the Walsh-Healey Act is not in issue but rather the
     issue is the applicability of that Act to this procurement.
     Accordingly, Labor's views, not SBA2 8, are pertinent to
     this case.

In addition, this decision stated that "we do not understand why
the RFP referenced the SIC code for the distribution of gas," as
"the RFP did not provide for the distribution of gas to
government installations." It went on to note that the RFP was
principally for the supply of natural gas as a commodity, not to
obtain services.

This decision also noted and concurred in DOL's view that the
applicability of the Walsh-Healey Act depended on the nature of
the provider and not the services rendered.

Finally, the key findings in this decision state that:

     1. Solicitation for natural gas from wellhead producers and
     its transmission via the interstate pipeline to local
     distributing companies reasonably are found not to be a
     contract for utility services within the meaning of the
     Department of Labor's regulatory exemption from the
     application of the Walsh-Healey Act and thus the Walsh-
     Healey Act is applicable to the procurement.
     
     2. Procuring agency properly did not set-aside procurement
     for small disadvantaged business (SDB) concerns where the
     agency determined that there was no expectation of receiving
     offers from two or more SDBs which would be eligible for
     award as manufacturers/producers or regular dealers as
     required by the Walsh-Healey Act.

On January 7, 1990, after the record closed, the Appellant also
submitted a "Motion And Request To Respond To Statement Of DFSC
January 4, 1991" and "Reply To The DFSC December 26, Statement."

In addition, we received a "Motion And Request To Respond To The
Statement Of Commercial Energies, Inc." and a "Supplementary
Statement By The Defense Fuel Supply Center" from the Contracting
Officer on January 16, 1991.

Discussion

To avoid delay in disposing of this appeal, the Appellant's
filings and the Contracting Officer's filings after the closing
of the record will be disregarded. See 13 CFR 121.1712(e) and
121.1708.

Further, all matters pertaining to this appeal can be resolved
from the written record. Accordingly, we do not find that there
is a genuine dispute as to any material fact of decisional
significance which cannot be resolved except by confrontation of
witnesses. Therefore, pursuant to 13 CFR 121.1714(a) and (b), the
Appellant's request for a telephone conference or an oral hearing
is denied.

In Size Appeal of Commercial Energies Inc., No. 3397 (January 7,
1991), we held that this same Appellant had no standing to file a
size protest pertaining to solicitation No. DLA600-90-R-0126.
This solicitation, as previously noted, was for the direct supply
of natural gas and included both SIC codes 1311 and 4924. In
addition, it, too, contained the Walsh-Healey Act requirement
that contracts entered into as a result of this solicitation must
be with manufacturers/producers or regular dealers in the natural
gas industry. The Appellant's lack of standing was based on the
fact that it did not submit an offer on this solicitation,
apparently because it did not meet these Walsh-Healey Act
requirements.

This SIC code appeal also pertains to a solicitation for the
direct supply of natural gas, issued under SIC code 1311, and
also contains the Walsh-Healey Act requirement. Further, the
Appellant did not submit an offer on this solicitation,
apparently for the same reason that it did not do so with respect
to the solicitation at issue in its prior appeal. We also note
that both the DOL and the Comptroller General have issued
decisions which state that the Walsh-Healey Act applies to
solicitations issued for direct supply natural gas.

Accordingly, since the Appellant did not submit an offer on this
solicitation because it cannot comply with the Walsh-Healey Act
requirement that it must be a manufacturer/producer or regular
dealer in the natural gas industry, we find that the Appellant
also does not have standing, pursuant to 13 CFR 121.1703(b), to
file this SIC code appeal.

Conclusion

This appeal is DISMISSED for lack of standing.

This constitutes the final decision of the Small Business
Administration. See 13 CFR 121.1720(a), (b), and (c).

               
               
               _____________________________
               Elwin H. White (Presiding)
               Administrative Judge
               
               
               ______________________________
               Michael S. Cole (Concurring)
               Administrative Judge
               
               
               ______________________________
               G. Stephen Wright (Concurring)
               Administrative Judge

_____________

     */   Solicitations issued on or after January 1, 1990 are
regulated by 13 CFR Part 121 published in 54 Fderal Register
52634, et seq., on December 21, 1989, effective January 1, 1990,
and any amendments in effect on or before the solicitation date.