B-180341, MAY 10, 1974

B-180341: May 10, 1974

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IT WAS APPARENT FROM RFP THAT RESIDUAL VALUE WOULD NOT BE CONSIDERED IN THE EVALUATION OF PROPOSALS. QUESTION WHETHER OMB CIRCULAR A-54 REQUIRED INCLUSION OF RESIDUAL VALUE FACTOR IN RFP IS MATTER OF EXECUTIVE POLICY NOT FOR DETERMINATION BY GAO. SINCE PROTEST WAS NOT FILED UNTIL AFTER AWARD. ASPECT OF PROTEST DEALING WITH AGENCY'S FAILURE TO PROVIDE FOR EVALUATION OF RESIDUAL VALUE IS UNTIMELY UNDER SECTION 20.2(A) OF INTERIM BID PROTEST PROCEDURES AND STANDARDS. 2. CONTENTION THAT VALUE OF PROGRAM CONVERSION OFFER SHOULD HAVE BEEN DEDUCTED FROM PROTESTER'S PROPOSAL IS WITHOUT MERIT. FOR THE REASONS STATED BELOW THE PROTEST IS DENIED. THE RFP WAS FOR A GENERAL PURPOSE. OFFERORS WERE ADVISED THAT THE ENSUING CONTRACT WOULD BE ON A FIXED PRICE BASIS AND THAT THE EXPECTED "SYSTEMS LIFE" OF THE EQUIPMENT WAS 60 MONTHS AFTER THE DATE OF INSTALLATION.

B-180341, MAY 10, 1974

1. CONTRARY TO PROTESTER'S CONTENTION THAT RFP PROVISIONS CALLED FOR EVALUATION OF RESIDUAL VALUE IN CONNECTION WITH LEASE OF ADP SYSTEM, IT WAS APPARENT FROM RFP THAT RESIDUAL VALUE WOULD NOT BE CONSIDERED IN THE EVALUATION OF PROPOSALS. QUESTION WHETHER OMB CIRCULAR A-54 REQUIRED INCLUSION OF RESIDUAL VALUE FACTOR IN RFP IS MATTER OF EXECUTIVE POLICY NOT FOR DETERMINATION BY GAO. MOREOVER, SINCE PROTEST WAS NOT FILED UNTIL AFTER AWARD, ASPECT OF PROTEST DEALING WITH AGENCY'S FAILURE TO PROVIDE FOR EVALUATION OF RESIDUAL VALUE IS UNTIMELY UNDER SECTION 20.2(A) OF INTERIM BID PROTEST PROCEDURES AND STANDARDS. 2. SINCE PROPOSALS MUST BE EVALUATED IN ACCORDANCE WITH CRITERIA IN RFP, WHICH DID NOT INCLUDE PROGRAM CONVERSION, CONTENTION THAT VALUE OF PROGRAM CONVERSION OFFER SHOULD HAVE BEEN DEDUCTED FROM PROTESTER'S PROPOSAL IS WITHOUT MERIT.

TO XEROX CORP.:

THIS CONCERNS A PROTEST FILED BY THE XEROX CORPORATION (XEROX) RELATIVE TO THE AWARD OF A CONTRACT TO NATIONAL CASH REGISTER COMPANY (NCR), UNDER REQUEST FOR PROPOSALS (RFP) NO. 152-24-3, ISSUED ON FEBRUARY 23, 1973, BY THE UNITED STATES INFORMATION AGENCY (USIA). FOR THE REASONS STATED BELOW THE PROTEST IS DENIED.

THE RFP WAS FOR A GENERAL PURPOSE, DIGITAL, AUTOMATIC DATA PROCESSING (ADP) COMPUTER SYSTEM AND RELATED SERVICES. OFFERORS WERE ADVISED THAT THE ENSUING CONTRACT WOULD BE ON A FIXED PRICE BASIS AND THAT THE EXPECTED "SYSTEMS LIFE" OF THE EQUIPMENT WAS 60 MONTHS AFTER THE DATE OF INSTALLATION. THE RFP PROVIDED PRICE TABLES AND INSTRUCTIONS FOR SUBMITTING PROPOSALS FOR A LEASED SYSTEM, A PURCHASED SYSTEM AND A LEASED SYSTEM WITH PURCHASE OPTION. USIA HAS ADVISED THAT THE PURPOSE OF REQUESTING PRICES ON THESE THREE ALTERNATIVES WAS TO ASSIST THE GENERAL SERVICES ADMINISTRATION (GSA) IN DETERMINING WHETHER TO USE THE REVOLVING FUND TO PURCHASE THE EQUIPMENT. THE RFP STATED THAT THE BASIC TERM OF THE CONTRACT WAS ONE YEAR AND THAT OFFERORS MUST OFFER YEARLY RENEWAL OPTIONS TO EXTEND THE TERM OF THE CONTRACT FOR A TOTAL OF FIVE YEARS. THE RFP ALSO PROVIDED THAT THESE OPTIONS WOULD BE INCLUDED IN THE EVALUATION OF PROPOSALS.

THE FOLLOWING PROVISIONS IN THE RFP ARE APPLICABLE TO THIS PROTEST. AMENDMENT NO. 1 REFERRED TO OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A 54 IN RESPONSE TO AN OFFEROR'S QUESTION, "EXPLAIN THE BASIS OF AWARD AND APPLICATION OF OMB CIRCULARS A-54 AND A-94", AS FOLLOWS:

"REFER TO CHAPTER I-B, PARAGRAPH 4 OF THE RFP. ALL PROPOSALS RECEIVED WILL BE CAREFULLY REVIEWED WITH BENCHMARK TESTS TO DETERMINE RESPONSIVENESS. ANALYSIS WILL THEREAFTER BE MADE OF ALL OFFERS DEEMED RESPONSIVE WITH RESPECT TO PRICES SUBMITTED IN THE RFP PRICE SCHEDULES TO ASCERTAIN WHICH OFFER AND METHOD OF PROCUREMENT RESULTS IN LOWEST COST TO THE GOVERNMENT. THE GENERAL POLICIES OF OMB CIRCULAR NO. A-54 AND APPROPRIATE GUIDELINES AND REGULATIONS GOVERNING ACQUISITION OF ADP EQUIPMENT WILL BE FOLLOWED. SPECIFIC CRITERIA WITH RESPECT TO DEFERRED COSTS AND BENEFITS, DISCOUNT RATES, SHIFT-USE FACTORS, OUTPUTS OF PROGRAMS, ETC. AS ENUMERATED IN THE REFERENCED CIRCULARS ARE NOT AVAILABLE FOR THIS PROCUREMENT. ACCORDINGLY, SUCH FACTORS WILL NOT BE APPLIED TO THIS PROCUREMENT."

THE PROVISION IN CHAPTER I-B, PARAGRAPH 4, OF THE RFP, REFERRED TO ABOVE, AS AMENDED, WAS AS FOLLOWS:

"4. EVALUATION.

PROPOSALS MUST BE PREPARED IN ACCORDANCE WITH INSTRUCTIONS GIVEN IN CHAPTER V AND MUST MEET ALL THE REQUIREMENTS OF THE RFP AS STATED IN CHAPTERS I AND II, IN ORDER TO BE ELIGIBLE FOR EVALUATION.

AWARD WILL BE PREDICATED ON THE BASIS OF THE LOWEST PRICED RESPONSIVE OFFER, INCLUDING ALL STATED OPTIONS FOR THE ENTIRE SYSTEM LIFE, AND SATISFYING THE BENCHMARK TESTS STATED IN CHAPTER III, WHICH FULLY CONFORMS TO ALL ASPECTS OF THE RFP."

QUESTION 28 IN AMENDMENT NO. 1 WAS, "WILL THERE BE A RESIDUAL VALUE FOR THE PURCHASE PLAN?" AND THE RESPONSE WAS "NO."

PROPOSALS WERE RECEIVED FROM FOUR FIRMS, INCLUDING XEROX, ON JUNE 29, 1973, AND NEGOTIATIONS WERE CONDUCTED WITH ALL OF THE OFFERORS. THE FILE INDICATES THAT BY LETTER OF AUGUST 23, 1973, XEROX WAS FURNISHED WITH A LIST OF ITEMS FOR CLARIFICATION AND ON SEPTEMBER 19, 1973, XEROX AND THE OTHER OFFERORS WERE FURNISHED WITH A CLARIFICATION OF THE EFFECTIVENESS LEVEL REQUIREMENT. BY LETTER OF NOVEMBER 20, 1973, XEROX AND THE OTHER OFFERORS WERE ADVISED THAT BEST AND FINAL OFFERS WERE REQUIRED BY NOVEMBER 28, 1973. XEROX'S RESPONSE TO THE AUGUST 23 LETTER IS IDENTIFIED AS "ITEMS CLARIFIED". XEROX ALSO AMENDED ITS PROPOSAL BY LETTERS DATED SEPTEMBER 17 AND 28, AND NOVEMBER 13, 1973. AS A RESULT OF DISK CHANGES XEROX SUBMITTED A REVISED PRICE PROPOSAL ON OCTOBER 4, 1973, AND XEROX'S BEST AND FINAL OFFER WAS RECEIVED ON NOVEMBER 28, 1973.

USIA HAS ADVISED THAT AFTER A COMPARATIVE COST ANALYSIS WAS MADE OF THE RELATIVE MERITS OF LEASE VERSUS PURCHASE BASED ON THE BEST AND FINAL OFFERS, A DETERMINATION WAS MADE TO PROCURE THE SYSTEM ON A LEASE BASIS.

NCR WAS SELECTED AS THE SUCCESSFUL OFFEROR SINCE ITS PROPOSAL AT $820,680 WAS THE LOWEST RESPONSIVE OFFER FOR A 5-YEAR "SYSTEMS LIFE" TERM. XEROX'S PROPOSAL FOR A 5-YEAR RENTAL TERM WAS $835,409. (WE NOTE THAT NCR'S PRICE FOR PURCHASE OF THE EQUIPMENT AT $713,815 WAS ALSO LOWER THAN XEROX'S PURCHASE PRICE OF $747,695.) AWARD WAS MADE TO NCR ON DECEMBER 14, 1973, AND INSTALLATION OF THE SYSTEM IS SCHEDULED FOR DECEMBER 1974.

BY LETTER OF DECEMBER 14, 1973, USIA ADVISED THE UNSUCCESSFUL OFFERORS OF THE AWARD. USIA REPORTS THAT XEROX'S REPRESENTATIVE WAS GIVEN TELEPHONIC NOTICE OF THE AWARD ON DECEMBER 14, 1973. BY LETTER DATED DECEMBER 21, 1973, XEROX PROTESTED TO THIS OFFICE. XEROX URGES THAT ITS PROPOSAL WOULD HAVE BEEN LOW ON EITHER A LEASE OR PURCHASE BASIS IF RESIDUAL VALUE AND XEROX'S PROGRAM CONVERSION PROPOSAL HAD BEEN CONSIDERED IN THE EVALUATION.

WITH RESPECT TO RESIDUAL VALUE XEROX CONTENDS THAT THE RFP PROVIDED THAT THIS FACTOR WOULD BE INCLUDED IN THE EVALUATION IN VIEW OF THE REFERENCES IN THE SOLICITATION TO CIRCULAR A-54, ISSUED BY THE OFFICE OF MANAGEMENT AND BUDGET, AND THE LANGUAGE IN PARAGRAPH 5B ON PAGE 4 OF THAT CIRCULAR WHICH STATES, IN PART, AS FOLLOWS:

"*** THE RESIDUAL VALUE OF EQUIPMENT TO THE FEDERAL GOVERNMENT WILL BE CONSIDERED AS A FACTOR IN A COMPARATIVE COST ANALYSIS. TRADEIN ALLOWANCES QUOTED BY MANUFACTURERS MAY BE USED AS A REPRESENTATION OF THE RESIDUAL VALUE."

IT IS CONTENDED THAT THE ABOVE LANGUAGE MAKES CLEAR THE POLICY THAT SHOULD HAVE BEEN FOLLOWED WITH RESPECT TO RESIDUAL VALUE.

AS INDICATED IN XEROX'S PROTEST RESIDUAL VALUE IS REFERRED TO IN OMB CIRCULAR A-54. HOWEVER, OFFERORS WERE ADVISED BY AMENDMENT NO. 1 TO THE RFP THAT RESIDUAL VALUE WOULD NOT BE CONSIDERED IN A PURCHASE PLAN. OFFERORS WERE ALSO ADVISED BY THE AMENDMENT THAT CERTAIN ITEMS ENUMERATED IN CIRCULAR A-54 SUCH AS "DEFERRED COSTS AND BENEFITS" WOULD NOT BE CONSIDERED IN THIS PROCUREMENT. SINCE RESIDUAL VALUE CLEARLY IS IN THE CATEGORY OF A DEFERRED BENEFIT AND SINCE ANOTHER SECTION OF THE RFP STATED THAT THE EXPECTED "SYSTEMS LIFE" OF THE EQUIPMENT WAS 60 MONTHS AFTER INSTALLATION, WE BELIEVE THAT THE AGENCY'S INTENTION NOT TO INCLUDE CONSIDERATION OF RESIDUAL VALUE IN THE EVALUATION OF PROPOSALS UNDER EITHER THE PURCHASE PLAN OR THE LEASE PLAN WAS APPARENT FROM THE RFP.

WITH REGARD TO WHETHER CIRCULAR A-54 REQUIRED CONSIDERATION OF RESIDUAL VALUE, USIA REPORTS THAT GSA OFFICIALS WERE CONSULTED DURING THE DRAFTING OF THE INSTANT RFP AND THEY ADVISED THAT RESIDUAL VALUE NEED NOT BE INCLUDED AS AN EVALUATION FACTOR FOR THIS PROCUREMENT SINCE IT WAS UNABLE TO ADVISE AS TO THE RESIDUAL VALUE PERCENTAGES TO BE APPLIED. IN ANY EVENT WE BELIEVE THAT THE QUESTION WHETHER CIRCULAR A 54 REQUIRED CONSIDERATION OF RESIDUAL VALUE FOR THIS PROCUREMENT IS A MATTER OF EXECUTIVE POLICY NOT WITHIN THE DECISION FUNCTIONS OF THIS OFFICE. SEE 53 COMP. GEN. 86 (1973). MOREOVER, IT SHOULD BE NOTED THAT SECTION 20.2(A) OF OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS (4 CFR 20.2(A)) STATES THAT PROTESTS WHICH ARE BASED UPON ALLEGED IMPROPRIETIES IN A SOLICITATION WHICH ARE APPARENT PRIOR TO THE CLOSING DATE FOR RECEIPT OF PROPOSALS MUST BE FILED PRIOR THERETO. IN VIEW OF THE FACT THAT XEROX'S PROTEST WAS NOT FILED UNTIL AFTER THE AWARD WAS MADE, WE FIND THAT THIS ASPECT OF THE PROTEST IS UNTIMELY AND WILL NOT BE CONSIDERED FURTHER. SEE B-179825, MARCH 12, 1974.

XEROX ALSO CONTENDS THAT AS THE RESULT OF ITS PROGRAM CONVERSION OFFER, SOME $28,000 SHOULD HAVE BEEN DEDUCTED FROM THE PRICE OF ITS PROPOSAL. XEROX URGES THAT UNDER FEDERAL PROPERTY MANAGEMENT REGULATIONS (FPMR) AND CIRCULAR A-54, CONVERSION WAS A COST TO BE CONSIDERED IN ANY NEGOTIATED ADP EQUIPMENT PROCUREMENT IF IT WAS IN THE BEST INTEREST OF THE GOVERNMENT. XEROX STATES THAT IT WAS GIVEN THE OPPORTUNITY BY USIA TO EXAMINE THOSE USIA PROGRAMS THAT XEROX FELT COULD BE CONVERTED; THAT SEVERAL MEETINGS WERE HELD BETWEEN USIA AND XEROX PERSONNEL ON CONVERSION AND THAT XEROX WAS ADVISED AFTER DISCUSSION WITH AN OFFICIAL OF GSA THAT A CONVERSION PROPOSAL WOULD BE IN THE BEST INTEREST OF THE GOVERNMENT. FOR THESE REASONS, XEROX STATES THAT IT CONCLUDED THAT ITS PROGRAM CONVERSION OFFER WOULD BE CONSIDERED IN THE EVALUATION OF ITS PROPOSAL.

USIA HAS FURNISHED THE FOLLOWING INFORMATION WITH RESPECT TO THIS CONTENTION:

"PROGRAM CONVERSION PROPOSALS WERE NOT REQUIRED OR INCLUDED IN THE SOLICITATION IN TERMS OF EITHER MANDATORY REQUIREMENTS OR DESIRABLE FEATURES, AND CONSEQUENTLY WERE NOT CITED AS AN EVALUATION FACTOR. FILE CONVERSION (DATA CONVERSION AS OPPOSED TO PROGRAM CONVERSION) WAS MENTIONED IN CHAPTER II, PARAGRAPH 34, PAGE II-15, AND IN THE PRICE TABLE NO. 1 FORMAT AND INSTRUCTIONS FOR PREPARATION THEREOF, BUT ONLY AS AN AGENCY REQUIREMENT THAT THE VENDOR PROVIDE 200 HOURS OF COMPUTER TIME FREE OF CHARGE FOR COMPILING, PROGRAM TESTING, AND FILE CONVERSION. ANY CHARGE TO THE AGENCY FOR 100 EXTRA USE HOURS IN EXCESS OF THE AFOREMENTIONED 200 HOURS HAD TO BE ENTERED IN THE PRICE TABLES AND WAS INCLUDED IN THE EVALUATION OF THE PROPOSALS.

"APPROXIMATELY 450 AGENCY COMPUTER PROGRAMS HAVE BEEN UNDERGOING EVALUATION FOR SOME TIME AND ALMOST ALL WILL HAVE TO BE MODIFIED, COMBINED AND/OR REWRITTEN. BY MEMORANDUM OF AUGUST 21, 1973 (ENCLOSURE 13) THE ASSISTANT DIRECTOR (ADMINISTRATION) ADVISED ALL AGENCY ELEMENTS OF THE COMPUTER CONVERSION PROGRAM AND ESTABLISHED DECEMBER 31, 1973, AS THE CUTOFF DATE FOR RECEIVING MAJOR MODIFICATIONS. THIS DATE WAS SUBSEQUENTLY EXTENDED TO FEBRUARY 28, 1974. UNTIL ALL AGENCY PROGRAM REQUIREMENTS ARE REVIEWED BY AGENCY COMPONENTS, THE PARAMETERS OF THE CONVERSION EFFORT CANNOT BE DETERMINED AND CONVERSION PROPOSALS CANNOT BE EVALUATED. PROGRAM CONVERSION, THEREFORE, WAS NOT PART OF THE SOLICITATION. ***

"XEROX'S COBOL CONVERSION PROPOSAL WAS OFFERED ON A STRAIGHT LINE BASIS IN LIEU OF THE AGENCY'S REQUIREMENTS FOR 200 HOURS OF COMPUTER TIME AND SIX MONTHS ON-SITE SUPPORT. THE AGENCY CONSIDERS THE LATTER TWO REQUIREMENTS MANDATORY. THE XEROX SUBSTITUTE PROPOSAL TO CONVERT 117 PROGRAMS (OUT OF APPROXIMATELY 450 PROGRAMS COMPRISING THE AGENCY'S TOTAL PROGRAM CONVERSION EFFORT) ON A STRAIGHT LINE CONVERSION BASIS, I.E., CONVERTING EXISTING PROGRAMS TO THE NEW SYSTEM WITHOUT ANY REWRITING OR CONSIDERATION OF MODIFICATIONS OR CHANGES IN PROGRAM REQUIREMENTS, WOULD NOT HAVE BEEN RESPONSIVE TO THE BASIC REQUIREMENTS OF THE SOLICITATION.

"EVEN NOW, THE AGENCY IS NOT IN A POSITION TO ATTACH A REASONABLY CERTAIN VALUE TO XEROX'S OFFER SINCE THE SCOPE AND QUANTITY OF CONVERSION EFFORT THAT WILL BE REQUIRED IS NEBULOUS AND STILL BEING DEVELOPED."

PARAGRAPH 34 ON PAGE II-15 OF THE SOLICITATION PROVIDED AS FOLLOWS:

"THE VENDOR MUST PROVIDE THE AGENCY WITH 200 HOURS OF COMPUTER TIME, FREE OF CHARGE, FOR COMPILING, PROGRAM TESTING, AND FILE CONVERSION. *** ANY CHARGE TO THE AGENCY, ABOVE THE 200 HOURS, MUST BE ENTERED IN THE PRICE TABLES AND WILL BE INCLUDED IN THE EVALUATION OF THE PROPOSAL."

A SPACE WAS PROVIDED IN THE PRICE TABLES FOR THE OFFEROR TO ENTER THE EXTRA USE CHARGE FOR 100 HOURS IN EXCESS OF 200 HOURS FOR FILE CONVERSION, TESTING, ETC. THERE WAS ALSO A REQUIREMENT IN THE SOLICITATION FOR SIX MONTHS ON-SITE SUPPORT.

XEROX'S PROPOSAL OF NOVEMBER 28, 1973, STATED THAT THE TOTAL COST FOR 300 HOURS OF CONVERSION TESTING WAS $18,600. ON THE SAME DATE XEROX SUBMITTED ITS PROGRAM CONVERSION OFFER WHICH STATED THAT IT WAS IN LIEU OF THE 200 HOURS COMPUTER TIME; THAT THE 200 HOURS COMPUTER TIME AND SIX MONTH ON- SITE SUPPORT PROPOSAL WILL REMAIN AS STATED IF THE PROGRAM CONVERSION PROPOSAL IS NOT ACCEPTED; AND THAT ACCEPTANCE OF THE PROGRAM CONVERSION PROPOSAL DOES NOT NEGATE ACCEPTANCE OF COMPUTER TIME OR ON SITE SUPPORT. THE PROGRAM CONVERSION OFFER WAS DIVIDED INTO ALTERNATIVE ONE DESIGNATED AS "CLEAN COMPILE" AND ALTERNATIVE TWO "BASE CASE TEST". THE PRICE FOR ALTERNATIVE ONE WAS "NO COST" AND THE PRICE OF ALTERNATIVE TWO WAS $4,300.

SINCE PROPOSALS MUST BE EVALUATED IN ACCORDANCE WITH THE CRITERIA IN THE RFP, WHICH DID NOT INCLUDE PROGRAM CONVERSION, XEROX'S PROGRAM CONVERSION PROPOSAL COULD NOT BE CONSIDERED IN THE EVALUATION OF PROPOSALS. SEE B- 171776, AUGUST 2, 1971 AND FEDERAL PROCUREMENT REGULATIONS 1-3.805-1(D). WHILE XEROX MAY HAVE DISCUSSED PROGRAM CONVERSION WITH REPRESENTATIVES OF USIA AND GSA, WE FIND THAT USIA'S DETERMINATION NOT TO INCLUDE PROGRAM CONVERSION IN THE RFP WAS REASONABLE.