[Federal Register Volume 61, Number 162 (Tuesday, August 20, 1996)]
[Notices]
[Pages 43037-43040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21218]
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COMMITTEE FOR PURCHASE FROM PEOPLE WHO ARE BLIND OR SEVERELY DISABLED
Procurement List; Addition
AGENCY: Committee for Purchase From People Who Are Blind or Severely
Disabled.
ACTION: Addition to the procurement list.
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SUMMARY: This action adds to the Procurement List a commodity to be
furnished by nonprofit agencies employing persons who are blind or have
other severe disabilities.
EFFECTIVE DATE: September 19, 1996.
ADDRESSES: Committee for Purchase From People Who Are Blind or Severely
Disabled, Crystal Square 3, Suite 403, 1735 Jefferson Davis Highway,
Arlington, Virginia 22202-3461.
FOR FURTHER INFORMATION CONTACT: Beverly Milkman (703) 603-7740.
SUPPLEMENTARY INFORMATION: On May 24, 1996, the Committee for Purchase
From People Who Are Blind or Severely Disabled published notice (61 FR
26167) of proposed addition to the Procurement List.
Comments were received from the current contractor for these flags
and from two Members of Congress. The contractor claimed that addition
to the Procurement List of another 20 percent
[[Page 43038]]
of the Department of Veterans Affairs (VA) requirement for interment
flags would have a severe adverse impact on the company, and submitted
the report of a financial expert to support that conclusion. The
contractor also claimed that the Committee's method of assessing impact
is insupportable because it ignores many factors which the contractor
claims should be considered.
The contractor stated that it has suffered significant losses since
the Committee added a portion of the VA requirement for interment flags
to the Procurement List in 1993. The contractor claimed that it had
been adversely impacted by previous Committee actions involving code
signal flags, and that the new addition of interment flags would
severely impact the company's employees because a significant number
would immediately lose their jobs as a result of the Committee's
actions and all would eventually be unemployed if the company failed.
Using documents obtained through the Freedom of Information Act (FOIA),
the contractor claimed that the Committee had abrogated its
responsibility to make the contractor impact determination by allowing
the central nonprofit agency (NISH) to participate substantially in the
determination.
The contractor claimed that the nonprofit agencies do not meet the
Committee's regulatory requirements as they are not performing the
required percentage of the labor necessary to make the flags. The
contractor also claimed that even if the Committee's ``ludicrous''
interpretation of the direct labor requirement is correct, the
nonprofit agencies are not meeting the requirement. The contractor also
claimed that the nonprofit agencies' requests for specification waivers
prove that the nonprofit agencies are incapable of making the flags.
The contractor further claimed that the relationship of one of the
nonprofit agencies with a for-profit flag manufacturer shows that the
previous addition of a part of the VA requirement was little more than
a diversion of that part from the contractor to one of its competitors.
The contractor submitted documents obtained under FOIA which it claimed
substantiated its case.
In conclusion, the contractor claimed that the Committee's 1993
decision to add 20 percent of the VA requirement for the interment flag
to the Procurement List was based upon improper input from a central
nonprofit agency with a financial interest in the proceeding. The
contractor also claimed that Committee members have been unfairly
maligning the company by stating that VA is unsatisfied with the
quality of the interment flags the contractor has provided.
The contractor was permitted to address the Committee at a meeting
held soon after the close of the comment period for the addition
proposal to elaborate on issues raised in the comments the contractor
had submitted. In a followup letter after this presentation, the
contractor raised two additional issues. The contractor claimed that if
the additional interment flag requirement is added to the Procurement
List, the total impact of the Committee's Javits-Wagner-O'Day (JWOD)
Program on the contractor would represent five percent of the total
portion of JWOD Program sales of commodities by nonprofit agencies
represented by NISH. The contractor also indicated that the impact of
the previous interment flag addition on the contractor had not yet
occurred, but soon would as VA purchases declined, and the impact would
be magnified by the 1996 addition.
The two Members of Congress, writing jointly, expressed concern
over possible loss of jobs by the contractor's employees and the
effects of this loss on the region where the contractor's plant is
located. They also asked the Committee to consider alternatives to
adding the additional interment flag requirement to the Procurement
List.
The Committee retained its own financial expert to review the
contractor's expert's report and assist the Committee in analyzing the
impact claims made by the contractor. Our expert's report refutes the
contentions of the contractor and its expert that the addition of an
additional 20 percent of the VA requirement for interment flags to the
Procurement List will have a severe adverse impact on the contractor.
Our expert concluded that the contractor appears to have sufficient
cash, capital and management expertise to withstand a decrease in
annual sales in the range which the total impact of the Committee's
actions would cause without a resulting severe adverse impact. The
percentage decline in the contractor's sales which our expert predicted
is well below the level which the Committee normally considers to be
severe adverse impact, and below the level which a court decision found
not to be severe adverse impact.
The contractor's gross profits, in fact, have increased
substantially since 1989. The one year in which the contractor's
financial statements show a loss, 1993, was a year in which the
nonprofit agencies produced almost no flags, as they received their
first contract late in the year and their production was delayed by
startup difficulties. The loss occurred because of a reduction in the
contractor's bid price for the flag contract, a failure by the
contractor to decrease its allocation for fixed costs in proportion to
its declining sales volume, and because the family who owned the
business took a large amount out of it for executive salaries and other
expenses. In this regard, it should be noted that even the contractor's
financial expert recommended that the company reduce its executive
salaries.
The contractor has attempted to explain the fact that its sales
have not declined despite the Committee's 1993 action in adding 20
percent of the VA interment flag requirement by stating that the VA's
flag requirements will soon decline precipitously, as VA uses up the
high number of flags it has bought in recent years. Information
provided to the Committee by VA, however, demonstrates that VA flag
requirements will not decline, but will increase through at least 2005
to meet the expected veteran mortality during that period. Accordingly,
any impact which the addition of a second 20 percent of the VA
interment flag requirement to the Procurement List might have will be
somewhat mitigated by the rising interment flag market.
The contractor's expert contended that the contractor's financial
position after the 1993 addition had become marginal, and that the
second addition would so threaten the viability of the company that its
auditors would likely issue a ``going concern'' opinion to warn of the
likely failure of the company. Our expert's review of the contractor's
financial statements indicated, however, that such an opinion could not
be issued because the contractor's cash and accounts receivable were in
such good condition that the projected sales loss was not critical, and
the likelihood of the contractor going out of business was very small.
Consequently, the possibility of extensive layoffs by the contractor,
affecting both the employees involved and the economy of the region, is
unlikely.
Our expert also rejected the contractor's contention that the
Committee's method of assessing contractor impact is simplistic.
Because of its contention that a proper assessment of impact required
the Committee to examine ten specific factors enumerated in the
contractor's comments, the Committee permitted the contractor to submit
additional information on these factors as they related to the
contractor's financial position, and this information was reviewed.
However, as our expert noted,
[[Page 43039]]
many of the problems the contractor has experienced were due to
management decisions, which no method of impact analysis could
anticipate. Consequently, the Committee, and its expert, believe that
the Committee's current method of assessing impact, which focuses on
percentage of contractor sales represented by a proposed Procurement
List addition and recent previous additions, as well as review of other
information submitted by the contractor, is an appropriate one which
the Committee should continue to use.
The code signal flags which the contractor claimed were impacting
its sales have been on the Procurement List, in some cases, since 1973.
The contractor brought this supposed continuing impact to the
Committee's attention late last year. The Committee investigated and
determined that the nonprofit agency was experiencing difficulties in
supplying the Government, which had caused the Government to procure
its requirements for these flags from commercial sources, including the
commenting contractor. Because of this situation, the code signal flags
were removed from the Procurement List in June 1996. Accordingly, the
Committee does not consider the code signal flags to have any impact on
the contractor at this time or in the future.
The Committee also examined the contractor's contention that it has
suffered or will suffer the impact of losing commodities equal to five
percent of NISH's commodities sales under the JWOD Program. NISH's
nonprofit agencies, however, produce a fairly small portion of the
commodities in the JWOD Program, as these nonprofit agencies mainly
furnish services to the Government. The percentage of overall JWOD
Program commodity sales which items lost by the contractor represent is
less than 2 percent. The Committee does not believe this is a
disproportionate amount for a company to experience, particularly one
that is as dominant in its industry as the contractor.
For all these reasons, including those set forth in more detail in
our expert's report, the Committee has concluded that addition of a
second 20 percent of the VA requirement for interment flags to the
Procurement List is not likely to have a severe adverse impact on the
contractor. In reaching this conclusion, the Committee has also taken
into account the contractor's long history as a supplier of interment
flags to the VA and its resulting dependency on contracts for the flag.
The contractor's contention that the Committee abrogated its
responsibility for making the contractor impact determination on this
addition to the Procurement List is based on documents in which NISH
expressed its opinion on the impact. The determination, however, is
made by the Committee as part of the decision to add the interment flag
requirement to the Procurement List, and no special weight is given to
opinions contained in information supplied by NISH or any other party
who is required or permitted to submit information to the Committee in
connection with a Procurement List addition. Because the structure of
the JWOD Program requires the Committee to rely on NISH and NIB to
submit much of the information used in making Procurement List addition
decisions, the Committee has established procedures to specify and
control what information they must submit before the Committee can
begin the rulemaking process which leads to a Procurement List
addition. The Committee is aware of the financial interest which NISH
has in the outcome of the Committee's decision, but does not believe
that interest prejudices the information NISH submits or influences the
Committee's addition decisions.
The contractor's claim that the nonprofit agencies do not meet the
statutory direct labor requirement is based on an argument that the
JWOD Act requires nonprofit agencies to use people with severe
disabilities to perform 75 percent of the direct labor involved in all
aspects of producing the flag. The statutory requirement, however, is
that 75 percent of all direct labor performed by employees of nonprofit
agencies participating in the JWOD Program, including direct labor on
commodities and services outside the JWOD Program, must be performed by
people with severe disabilities. 41 U.S.C. Sec. 48b(4)(C). There is no
requirement that 75 percent of the total production process be
performed by people with severe disabilities. The Committee's
interpretation of the statutory requirement, far from being
``ludicrous,'' has been confirmed by a court decision known to the
contractor. At the present time, all three nonprofit agencies are in
compliance with this requirement.
The nonprofit agencies experienced some difficulties in gearing up
for full production of the flags in 1993. During that period, and in
response to VA requests for suggestions to improve manufacturing
efficiency and reduce costs, the nonprofit agencies submitted three
requests for waiver of specification requirements, two of which were
granted. After production began on the JWOD share of the 1993 VA flag
requirement, two more requests were made, both of which were granted by
VA. No waiver requests have been made in connection with the current
JWOD share of the VA flag requirement. During this initial period, the
failure of a fabric supplier to provide conforming material in a timely
manner caused the nonprofit agencies to miss some delivery deadlines.
Since the startup period, the nonprofit agencies have experienced no
significant quality or delivery problems in producing the flags.
Accordingly, the Committee does not believe that the events just
described affect the current capability of the nonprofit agencies to
produce the portion of the VA interment flag requirement being added to
the Procurement List.
One of the nonprofit agencies has long had a relationship with the
commercial flag manufacturer identified by the contractor as a
competitor, and the three nonprofit agencies did contract with that
manufacturer for technical support, procurement of star fields, and
production of stripe subassemblies during the startup phase of JWOD
flag production. At that time, the contractor was given an opportunity
to submit a bid for the star fields and stripe subassemblies, but
declined to do so. The technical support contract ended in 1994, and
since September 1994 only one nonprofit agency has continued buying
stripe subassemblies from the commercial manufacturer. In the future,
the nonprofit agency will produce the subassemblies in house. These
stripe subassemblies represent only ten percent of the cost of a
finished flag. Subcontracting at this level is within Committee
guidelines. The Committee does not believe that this relationship has
constituted an improper diversion of the JWOD share of the VA flag
requirement to a commercial producer, nor does it agree that the
relationship is a reason the additional flag requirement should not be
added to the Procurement List.
To the Committee's knowledge, no Committee member during the
current rulemaking procedure has maligned the contractor's ability to
produce flags acceptable to VA. The rulemaking record for the 1993
addition and subsequent reconsideration does contain a July 1993 letter
from VA to a Senator noting deficiencies in interment flags produced by
the contractor. On the other hand, the contractor has furnished the
Committee statements from VA employees indicating satisfaction with the
contractor's product. VA has told the Committee only that it will
continue to seek other sources for the flags. In any case, the quality
of a competing commercial contractor's product is not a factor which
the Committee considers in making a decision that a Government
[[Page 43040]]
supply requirement is suitable for production by nonprofit agencies
employing people who are blind or have other severe disabilities.
The concern expressed by the two Members of Congress for the
economic impact on a region of their State is based on taking at face
value the contractor's claim that the Committee's action will cause the
contractor to lay off a sizeable number of its employees. As discussed
above, the Committee does not believe this will occur, or if it does,
it will occur because of management decisions made by the contractor
and not because of the Committee's actions. The alternatives the
Congressmen suggested are the proposals the contractor made in 1993 and
1996 to provide work for people with severe disabilities if the
Committee would decline to add the proposed VA flag requirements to the
Procurement List. The Committee devoted considerable time and analysis
to each of these proposals, and rejected them only because they had
insurmountable flaws. In 1993, the contractor's proposal would have
required a specification change which VA had stated it would not
accept. In 1996, the proposal originally guaranteed to the nonprofit
agencies a multiple of the number of jobs the 1993 addition was
projected to create. The 1993 addition actually created nearly three
times the number of jobs projected for people with severe disabilities.
The Committee considered it improbable that the contractor could afford
to guarantee subcontracting opportunities that would create three times
this larger number of jobs for people with severe disabilities. This
opinion reflected the Committee's knowledge that VA was seeking other
contractors for the flags and that the contractor would have no
guarantee of recapturing all of the interment flag business when it was
procured on a competitive basis. In addition, accepting the 1996
proposal would have forced the nonprofit agencies to sacrifice work
they had successfully geared up to do, and which had proven to create
many jobs, in return for erratic and unspecified work as subcontractors
to the commenting contractor.
After consideration of the material presented to it concerning
capability of qualified nonprofit agencies to provide the commodity and
impact of the addition on the current or most recent contractors, the
Committee has determined that the commodity listed below is suitable
for procurement by the Federal Government under 41 U.S.C. 46-48c and 41
CFR 51-2.4. I certify that the following action will not have a
significant impact on a substantial number of small entities. The major
factors considered for this certification were:
1. The action will not result in any additional reporting,
recordkeeping or other compliance requirements for small entities other
than the small organizations that will furnish the commodity to the
Government.
2. The action will not have a severe economic impact on current
contractors for the commodity.
3. The action will result in authorizing small entities to furnish
the commodity to the Government.
4. There are no known regulatory alternatives which would
accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 46-
48c) in connection with the commodity proposed for addition to the
Procurement List.
Accordingly, the following commodity is hereby added to the
Procurement List:
Flag, National, Interment
8345-00-656-1432
(Additional 20% of the Government's requirement)
This action does not affect current contracts awarded prior to the
effective date of this addition or options that may be exercised under
those contracts.
Beverly L. Milkman,
Executive Director.
[FR Doc. 96-21218 Filed 8-19-96; 8:45 am]
BILLING CODE 6353-01-P
