B-179797, MAY 3, 1974

B-179797: May 3, 1974

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SINCE DETERMINATION BY FEDERAL GRANTEE IN CONNECTION WITH AWARD UNDER GRANT THAT OFFEROR WAS NONRESPONSIBLE BECAUSE OF INADEQUATE FINANCIAL RESOURCES IS SUPPORTED BY RECORD SHOWING MARGINAL FINANCIAL CONDITION AND PENDING BANKRUPTCY PROCEEDINGS. WHERE PROPOSAL WAS PROPERLY REJECTED ON BASIS OF OFFEROR'S NONRESPONSIBILITY. LEAA DETERMINED THAT THIS SYSTEM WAS OPERATING IN AN INADEQUATE MANNER TO PROVIDE IT PROPER SERVICE. THE PROJECT WILL BE CONSIDERED FOR THE NUCLEUS OF THE IMPORTANT FOLLOW-ON SYSTEM TO BE DEVELOPED. WHILE THE PROJECT COMPLETION DATES WERE CONSIDERED SOMEWHAT ACCELERATED. THIS WAS DEEMED TO BE JUSTIFIED IN VIEW OF THE VERY CONSIDERABLE INTEREST IN SUCH A SYSTEM BY ALMOST ALL LEVELS OF LAW ENFORCEMENT.

B-179797, MAY 3, 1974

1. SINCE DETERMINATION BY FEDERAL GRANTEE IN CONNECTION WITH AWARD UNDER GRANT THAT OFFEROR WAS NONRESPONSIBLE BECAUSE OF INADEQUATE FINANCIAL RESOURCES IS SUPPORTED BY RECORD SHOWING MARGINAL FINANCIAL CONDITION AND PENDING BANKRUPTCY PROCEEDINGS, GAO HAS NO BASIS TO OBJECT TO AGENCY'S (GRANTOR) APPROVAL OF GRANTEE'S AWARD. 2. WHERE PROPOSAL WAS PROPERLY REJECTED ON BASIS OF OFFEROR'S NONRESPONSIBILITY, GAO DEEMS IT UNNECESSARY TO CONSIDER OTHER ISSUES RAISED BY PROTESTER AS TO VALIDITY OF REJECTION ACTION.

TO COMPUTER COMMUNICATIONS, INCORPORATED:

IN ORDER TO PROVIDE FOR MORE EFFECTIVE COMMUNICATIONS BETWEEN JURISDICTIONS CONCERNING CRIMINAL JUSTICE MATTERS, THE LAW ENFORCEMENT ASSISTANCE ADMINISTRATION (LEAA) OF THE UNITED STATES DEPARTMENT OF JUSTICE, ON JUNE 29, 1973, (THROUGH THE NATIONAL CRIMINAL JUSTICE INFORMATION AND STATISTICS SERVICE) AWARDED A GRANT TO THE NATIONAL LAW ENFORCEMENT TELETYPE SYSTEM, INCORPORATED (NLETS), A NONPROFIT ORGANIZATION INCORPORATED UNDER THE LAWS OF DELAWARE IN 1964. WHILE NLETS HAS MAINTAINED A NATIONWIDE COMMUNICATIONS FACILITY FOR THE INTERCHANGE OF OPERATIONAL AND ADMINISTRATIVE INFORMATION CONCERNING EFFECTIVE LAW ENFORCEMENT, LEAA DETERMINED THAT THIS SYSTEM WAS OPERATING IN AN INADEQUATE MANNER TO PROVIDE IT PROPER SERVICE. THEREFORE, IN ORDER TO UPGRADE THE NATIONAL LAW ENFORCEMENT TELETYPE SYSTEM TO AN ACCEPTABLE LEVEL, LEAA AWARDED THIS GRANT (TO RUN FROM JUNE 29, 1973 TO DECEMBER 28, 1974) TO NLETS AS PHASE ONE OF THE UPGRADING PROJECT. IF SUCCESSFUL, THE PROJECT WILL BE CONSIDERED FOR THE NUCLEUS OF THE IMPORTANT FOLLOW-ON SYSTEM TO BE DEVELOPED. WHILE THE PROJECT COMPLETION DATES WERE CONSIDERED SOMEWHAT ACCELERATED, THIS WAS DEEMED TO BE JUSTIFIED IN VIEW OF THE VERY CONSIDERABLE INTEREST IN SUCH A SYSTEM BY ALMOST ALL LEVELS OF LAW ENFORCEMENT, INCLUDING LEAA.

PURSUANT TO ITS AUTHORITY UNDER THE GRANT, ON AUGUST 21, 1973, NLETS ISSUED A REQUEST FOR PROPOSALS FOR THE COMPUTER SOFTWARE AND HARDWARE FOR THE SYSTEM, AND THE RFP PROVIDED THAT THE OFFEROR SELECTED WOULD BE REQUIRED TO INSTALL A SYSTEM CAPABLE OF PROVIDING MESSAGE SWITCHING SERVICES NATIONWIDE. THE SCHEDULE PROVIDED THAT PROPOSALS WERE TO BE SUBMITTED BY SEPTEMBER 7, 1973, AND THAT A PROSPECTIVE CONTRACTOR WOULD BE SELECTED BY SEPTEMBER 18, 1973. IN VIEW OF THE ESSENTIAL NATURE OF THE COMPUTER/SWITCHER TO NLETS, THE SYSTEM WAS TO BE INSTALLED AND OPERATIONAL NO LATER THAN DECEMBER 24, 1973. PURSUANT TO THE CONDITIONS OF THE GRANT, WHICH REQUIRED THAT SUCH PROCUREMENT TRANSACTIONS BE CONDUCTED IN A MANNER SO AS TO PROVIDE MAXIMUM OPEN AND FREE COMPETITION, THE RFP PROVIDED THAT A PROSPECTIVE CONTRACTOR'S FINANCIAL CAPABILITY TO FULFILL NLETS' REQUIREMENTS THROUGHOUT THE CONTRACT PERIOD WOULD BE CONSIDERED BY THE EVALUATION TEAM ALONG WITH THE TECHNICAL ADEQUACY OF THE PROPOSAL ITSELF. IN ADDITION, THE GRANT PROVIDED FOR APPROVAL BY LEAA OF ANY CONTRACT AWARDED PURSUANT THERETO. ALTHOUGH FIVE FIRMS SUBMITTED PROPOSALS, THE OFFERS OF IBM (DATA PROCESSING DIVISION) AND COMPUTER COMMUNICATIONS, INCORPORATED (CCI), WERE CONSIDERED INADEQUATE AND WERE REJECTED WITHOUT NEGOTIATION. FOLLOWING NEGOTIATIONS WITH THE THREE REMAINING OFFERORS, NLETS SELECTED ACTION COMMUNICATION SYSTEMS, INCORPORATED, TO PROVIDE THE SYSTEM. AFTER BEING ADVISED THAT ITS OFFER WAS REJECTED FOR TECHNICAL REASONS AND BECAUSE OF ITS MARGINAL FINANCIAL POSITION, CCI FILED A PROTEST WITH THIS OFFICE.

INITIALLY, IT SHOULD BE NOTED THAT WHILE THE FEDERAL GOVERNMENT IS NOT A PARTY TO THE CONTRACT AWARDED, IT IS THE RESPONSIBILITY OF LEAA TO DETERMINE WHETHER THE ABOVE REFERENCED CONDITIONS OF THE GRANT WERE MET. THUS, OUR ROLE IN THIS CASE IS LIMITED TO A REVIEW OF THE FACTS AND CIRCUMSTANCES TO DETERMINE IF LEAA PROPERLY APPROVED THE AWARD AS PROVIDED IN THE GRANT. 52 COMP. GEN. 874 (1973).

IN ITS REPORT TO THIS OFFICE, LEAA STATES THAT THE GRANTEE PROPERLY REJECTED THE OFFER OF CCI ON THE GROUNDS THAT THE OFFER WAS TECHNICALLY INADEQUATE, CCI WAS FINANCIALLY NONRESPONSIBLE, AND CCI DID NOT SUBMIT A BID BOND AS REQUIRED.

WE NOTE THAT AS A CONDITION OF THE GRANT NLETS WAS REQUIRED TO INSURE THAT THE CONTRACTOR IT SELECTED NOT ONLY MET THE RFP'S TECHNICAL REQUIREMENTS BUT WAS ALSO RESPONSIBLE, THAT IS, POSSESSED THE CAPABILITY, INCLUDING FINANCIAL RESOURCES, TO SUCCESSFULLY PERFORM THE CONTRACT. COMPLIANCE WITH THIS REQUIREMENT, THE RFP CONTAINED THE FOLLOWING PROVISION:

2.18 FINANCIAL STABILITY

"EACH VENDOR SHALL SUBMIT A COPY OF THE LATEST CERTIFIED FINANCIAL STATEMENT ISSUED BY HIS COMPANY. THE FINANCIAL STABILITY AND GROWTH DATA PRESENTED ON THIS STATEMENT SHALL BE USED BY THE EVALUATION TEAM TO ASSIST IN DETERMINING THE VENDOR'S FINANCIAL CAPABILITY OF FULFILLING THE REQUIREMENTS OF NLETS THROUGHOUT THE CONTRACT PERIOD."

WE HAVE CONSISTENTLY HELD THAT THE QUESTION OF A PROSPECTIVE CONTRACTOR'S RESPONSIBILITY, INCLUDING FINANCIAL CAPABILITY, IS A MATTER FOR DETERMINATION BY THE AGENCY INVOLVED AND THAT SINCE SUCH DETERMINATION INVOLVES A CONSIDERABLE RANGE OF DISCRETION, WE WILL NOT SUBSTITUTE OUR JUDGMENT FOR THAT OF THE ADMINISTRATIVE AGENCY UNLESS IT IS SHOWN BY CLEAR AND CONVINCING EVIDENCE THAT THE FINDING OF NONRESPONSIBILITY WAS UNREASONABLE OR NOT BASED UPON SUBSTANTIAL EVIDENCE. 53 COMP. GEN.

(B-178841, NOVEMBER 15, 1973).

A REVIEW OF THE LEAA REPORT, INCLUDING THE ATTACHED DUN AND BRADSTREET REPORT, PROVIDES A HISTORY OF THE FINANCIAL POSITION OF CCI FORMING THE BASIS OF THE NEGATIVE DETERMINATION WITH RESPECT TO FINANCIAL RESPONSIBILITY. IT APPEARS THAT ON AUGUST 8, 1973, A COMMITTEE REPRESENTING CCI CREDITORS WAS FORMED AND AGREED TO RECOMMEND TO THE CREDITORS AN EXCHANGE OF THEIR INDEBTEDNESS FOR CCI EQUITY, AND THAT, ON AUGUST 27, 1973, CCI FILED A PETITION UNDER CHAPTER XI OF THE BANKRUPTCY ACT (11 U.S.C. 701 ET SEQ.) IN THE FEDERAL DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND EXPECTED THAT ITS PROPOSED REORGANIZATION PLAN WOULD BE COMPLETED BY OCTOBER 31, 1973.

AN ANALYSIS OF THE FINANCIAL POSITION OF CCI INDICATES THAT, AT THE TIME OF THE EVALUATION ON SEPTEMBER 17, 1973, BY NLETS OF ITS FINANCIAL RESPONSIBILITY, CCI'S ABILITY TO SATISFY ITS CURRENT LIABILITIES WAS LIMITED, WITH A SUBSTANTIAL WORKING CAPITAL DEFICIT AND A CURRENT RATIO OF ASSETS TO LIABILITIES OF APPROXIMATELY .55. WHILE CCI HAD TENTATIVELY REACHED AGREEMENT WITH ANOTHER FIRM WHEREBY CCI WOULD BE ABLE TO INCREASE ITS WORKING CAPITAL, THE RECORD INDICATES THAT THIS ARRANGEMENT WAS NOT APPROVED BY EITHER THE CREDITORS AS A WHOLE OR BY THE COURT HAVING JURISDICTION OF THE BANKRUPTCY PROCEEDINGS PRIOR TO NLETS' SELECTION OF A CONTRACTOR.

MOREOVER, THERE IS NO INDICATION THAT AT THE TIME OF EVALUATION AND REJECTION OF CCI'S PROPOSAL A REORGANIZATION PLAN HAD EITHER BEEN FILED WITH THE COURT OR APPROVED. WHILE PENDENCY OF CHAPTER XI PROCEEDINGS IS NOT A BASIS, PER SE, FOR FINDING AN OFFEROR FINANCIALLY NONRESPONSIBLE, B- 153478, JANUARY 18, 1965, IT CAN BE CONSIDERED AS A FACTOR IN SUCH A DETERMINATION. 52 COMP. GEN. 372, 376-77 (1972). NLETS AND LEAA WERE ALSO ENTITLED TO CONSIDER CCI'S SUBSTANTIAL DEFICIT IN WORKING CAPITAL AND ITS NET WORTH POSITION. B-158420, AUGUST 1, 1966. IN DETERMINING CCI'S FINANCIAL ABILITY TO PERFORM, IN ADDITION TO ITS MARGINAL FINANCIAL POSITION, THERE WAS FOR CONSIDERATION THE ACCELERATED TIME CONSTRAINTS OF THE CONTRACT, THE ESSENTIAL REQUIREMENT OF HAVING THE COMPUTER/SWITCHER INSTALLED AND OPERATIONAL BY DECEMBER 24, 1973, AS A BASIS UPON WHICH TO FURTHER UPDATE THE REST OF THE SYSTEM, AND THE FACT THAT CCI'S REORGANIZATION PLAN WOULD NOT BE COMPLETED UNTIL AT LEAST OCTOBER 31, 1973, WELL INTO THE PERIOD OF CONTRACT PERFORMANCE. BASED ON THESE CONSIDERATIONS, WE CANNOT CONCLUDE THAT THE DETERMINATION BY NLETS AND LEAA THAT CCI WAS NOT FINANCIALLY RESPONSIBLE TO PERFORM THE CONTRACT WAS UNREASONABLE OR NOT BASED UPON SUBSTANTIAL EVIDENCE. 39 COMP. GEN. 895 (1960); B-172126, JUNE 23, 1971.

SINCE THE RECORD SUPPORTS THE DETERMINATION THAT CCI WAS NOT FINANCIALLY CAPABLE OF FULFILLING THE REQUIREMENTS OF THIS PROCUREMENT AND, THEREFORE, REJECTION OF ITS PROPOSAL WAS PROPER, WE DO NOT BELIEVE IT NECESSARY TO CONSIDER THE ISSUES CONCERNING THE TECHNICAL EVALUATION AND THE BID BOND REQUIREMENT.

ACCORDINGLY, THE PROTEST IS DENIED.