B-183039, MAR 19, 1975, 54 COMP GEN 767

B-183039: Mar 19, 1975

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CONTRACTS - PROTESTS - ABEYANCE PENDING COURT ACTION - TEMPORARY RESTRAINING ORDER EVEN THOUGH MANY ISSUES INVOLVED IN SUBCONTRACT PROTEST ARE BEFORE COURT OF COMPETENT JURISDICTION. GENERAL ACCOUNTING OFFICE (GAO) WILL STILL RENDER DECISION. DECISION WILL NOT CONSIDER MERITS OF SUBCONTRACT PROTEST. COURT WAS MADE FULLY COGNIZANT OF THIS POSSIBILITY PRIOR TO TRO'S ISSUANCE. WHO IS NOT PURCHASING AGENT. ARE GENERALLY NOT SUBJECT TO STATUTORY AND REGULATORY REQUIREMENTS GOVERNING GOVERNMENT'S DIRECT PROCUREMENTS. "FEDERAL NORM" IS FRAME OF REFERENCE GUIDING AGENCY'S DETERMINATIONS AS TO REASONABLENESS OF PRIME CONTRACTOR'S PROCUREMENT PROCESS. ALTHOUGH PROPRIETY AND NECESSITY OF VARIATION FROM DETAILS OF "FEDERAL NORM" IS RECOGNIZED.

B-183039, MAR 19, 1975, 54 COMP GEN 767

CONTRACTS - PROTESTS - ABEYANCE PENDING COURT ACTION - TEMPORARY RESTRAINING ORDER EVEN THOUGH MANY ISSUES INVOLVED IN SUBCONTRACT PROTEST ARE BEFORE COURT OF COMPETENT JURISDICTION, GENERAL ACCOUNTING OFFICE (GAO) WILL STILL RENDER DECISION, SINCE TEMPORARY RESTRAINING ORDER (TRO) ISSUED BY COURT CLEARLY CONTEMPLATES GAO DECISION IN MATTER. HOWEVER, AS MATTER OF POLICY, DECISION WILL NOT CONSIDER MERITS OF SUBCONTRACT PROTEST. COURT WAS MADE FULLY COGNIZANT OF THIS POSSIBILITY PRIOR TO TRO'S ISSUANCE. CONTRACTS - SUBCONTRACTS - AWARD PREJUDICIAL EVEN THOUGH SUBCONTRACTING METHODS OF GOVERNMENT PRIME CONTRACTOR, WHO IS NOT PURCHASING AGENT, ARE GENERALLY NOT SUBJECT TO STATUTORY AND REGULATORY REQUIREMENTS GOVERNING GOVERNMENT'S DIRECT PROCUREMENTS, CONTRACTING AGENCY SHOULD NOT APPROVE SUBCONTRACT AWARD IF, AFTER THOROUGH CONSIDERATION OF PARTICULAR FACTS AND CIRCUMSTANCES, RESPONSIBLE GOVERNMENT CONTRACTING OFFICIALS FIND THAT PROPOSED AWARD WOULD BE PREJUDICIAL TO INTERESTS OF GOVERNMENT. "FEDERAL NORM" IS FRAME OF REFERENCE GUIDING AGENCY'S DETERMINATIONS AS TO REASONABLENESS OF PRIME CONTRACTOR'S PROCUREMENT PROCESS, ALTHOUGH PROPRIETY AND NECESSITY OF VARIATION FROM DETAILS OF "FEDERAL NORM" IS RECOGNIZED. CONTRACTS - PROTESTS - SUBCONTRACTOR PROTESTS AS MATTER OF POLICY, GENERAL ACCOUNTING OFFICE (GAO) GENERALLY WILL NOT CONSIDER PROTESTS AGAINST AWARDS OF SUBCONTRACTS BY PRIME CONTRACTORS, EVEN WHERE PRIME CONTRACT IS OF COST-REIMBURSEMENT TYPE, WHETHER OR NOT SUBCONTRACT HAS BEEN AWARDED. HOWEVER, GAO WILL CONSIDER SUBCONTRACT PROTESTS WHERE PRIME CONTRACTOR IS ACTING AS GOVERNMENT'S PURCHASING AGENT; GOVERNMENT'S ACTIVE OR DIRECT PARTICIPATION IN SUBCONTRACTOR SELECTION HAS NET EFFECT OF CAUSING OR CONTROLLING POTENTIAL SUBCONTRACTORS' REJECTION OR SELECTION, OR OF SIGNIFICANTLY LIMITING SUBCONTRACTOR SOURCES; FRAUD OR BAD FAITH IN GOVERNMENT'S APPROVAL OF SUBCONTRACT AWARD IS SHOWN; SUBCONTRACT AWARD IS "FOR" GOVERNMENT; OR AGENCY REQUESTS ADVANCE DECISION. 51 COMP. GEN. 803, MODIFIED. CONTRACTS - COST-TYPE - SUBCONTRACTS - SOCIAL SECURITY - MEDICARE PART "B" PROGRAM GENERAL ACCOUNTING OFFICE WILL NOT CONSIDER ON MERITS PROTEST OF AWARD OF AUTOMATIC DATA PROCESSING SUBCONTRACT BY HEALTH INSURANCE CARRIER ADMINISTERING MEDICARE PART "B" PROGRAM PURSUANT TO COST REIMBURSEMENT TYPE CONTRACT WITH SOCIAL SECURITY ADMINISTRATION (SSA), SINCE SSA'S SUBCONTRACT SELECTION APPROVAL INVOLVED NO FRAUD OR BAD FAITH; CARRIER IS NOT SSA'S PURCHASING AGENT; SSA'S PROCUREMENT PROCEDURE GUIDANCE, REVIEW OF REQUEST FOR PROPOSALS, ATTENDANCE AT OFFERORS' CONFERENCE AND NEGOTIATION SESSIONS, AND OTHER INVOLVEMENT IN SUBCONTRACT PROCUREMENT PROCESS DID NOT HAVE NET EFFECT OF CAUSING OR CONTROLLING SUBCONTRACTOR SELECTION; AND PROCUREMENT WAS NOT "FOR" GOVERNMENT. GENERAL ACCOUNTING OFFICE - JURISDICTION - SUBCONTRACTS GENERAL ACCOUNTING OFFICE (GAO) WILL NOT CONSIDER ON MERITS PROTEST OF AWARD OF AUTOMATIC DATA PROCESSING SUBCONTRACT BY HEALTH INSURANCE CARRIER ADMINISTERING MEDICARE PART "B" PROGRAM PURSUANT TO COST REIMBURSEMENT TYPE CONTRACT WITH SOCIAL SECURITY ADMINISTRATION (SSA) BY VIRTUE OF PROTESTER'S ALLEGATIONS THAT CONTRACTUAL AND REGULATORY REQUIREMENTS THAT CARRIER CONDUCT PROPER COST ANALYSIS BEFORE AWARDING SUBCONTRACT WERE NOT COMPLIED WITH, SINCE ENFORCEMENT OF SUCH REQUIREMENTS ARE CONTRACT ADMINISTRATION MATTERS APPROPRIATE FOR SSA'S RESOLUTION AND NOT PROPER FOR GAO'S RESOLUTION ABSENT EVIDENCE INDICATING FRAUD OR BAD FAITH.

IN THE MATTER OF OPTIMUM SYSTEMS, INC., MARCH 19, 1975:

BY TELEGRAM DATED JANUARY 14, 1975, OPTIMUM SYSTEMS INCORPORATED (OSI) PROTESTED THE PROPOSED AWARD OF A SUBCONTRACT TO ELECTRONIC DATA SYSTEMS FEDERAL INCORPORATED (EDSF) PURSUANT TO A REQUEST FOR PROPOSALS (RFP) ISSUED BY THE CALIFORNIA PHYSICIANS' SERVICE D/B/A CALIFORNIA BLUE SHIELD (CBS) UNDER ITS COST-REIMBURSEMENT TYPE CONTRACT WITH THE BUREAU OF HEALTH INSURANCE, SOCIAL SECURITY ADMINISTRATION (SSA), DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE (HEW), BALTIMORE, MARYLAND.

SSA'S CONTRACT WITH CBS WAS ENTERED INTO PURSUANT TO SECTION 1842 OF THE SOCIAL SECURITY AMENDMENTS OF 1965, PUBLIC LAW 89-97, JULY 30, 1965, 79 STAT. 286, 42 U.S.C. 1395U (1970), WHICH PROVIDES, INTER ALIA, THAT THE SECRETARY OF HEW IS AUTHORIZED TO ENTER INTO CONTRACTS WITH HEALTH INSURANCE CARRIERS TO PERFORM, OR SECURE THE PERFORMANCE OF, VARIOUS ADMINISTRATIVE FUNCTIONS IN CONNECTION WITH THE VOLUNTARY SUPPLEMENTARY MEDICAL INSURANCE PROGRAM ESTABLISHED BY PUBLIC LAW 89 97. THIS PROGRAM IS COMMONLY REFERRED TO AS THE MEDICARE PART "B" PROGRAM. UNDER ITS SSA CONTRACT, CBS IS TO ADMINISTER THIS PROGRAM IN ALL BUT NINE COUNTIES OF CALIFORNIA AND ITS PROPOSED SUBCONTRACT AWARD TO EDSF IS FOR AUTOMATIC DATA PROCESSING (ADP) OF MEDICARE PART "B" CLAIMS. EDSF IS THE INCUMBENT SUBCONTRACTOR.

CBS'S PROPOSED AWARD TO EDSF WAS SUBMITTED TO SSA FOR ITS APPROVAL IN ACCORDANCE WITH ARTICLE XVII OF THE CONTRACT, WHICH PROVIDES, INTER ALIA, THAT CBS "SHALL NOT ENTER INTO ANY SUBCONTRACT *** UNLESS SUCH SUBCONTRACT RECEIVED THE PRIOR WRITTEN APPROVAL ***" OF SSA. ALTHOUGH SSA HAS TENTATIVELY APPROVED THE SELECTION OF EDSF, OSI'S PROTEST WAS FILED PRIOR TO ACTUAL AWARD. CONSEQUENTLY, SSA WITHHELD ACTUAL APPROVAL OF THE SELECTION PENDING OUR DISPOSITION OF THE PROTEST.

HOWEVER, ON OR ABOUT MARCH 4, 1975, SSA DECIDED TO APPROVE THE PROPOSED AWARD TO EDSF. UPON LEARNING OF THE IMPENDING AWARD, OSI INSTITUTED CIVIL ACTION NO. 75-C-320 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (OPTIMUM SYSTEMS, INC. V. CASPAR W. WEINBERGER). OSI ASKED FOR THE FOLLOWING RELIEF:

(A) THAT A TEMPORARY RESTRAINING ORDER AND A PRELIMINARY INJUNCTION ISSUE ENJOINING DEFENDANT, AND HIS REPRESENTATIVES AND SUBORDINATES, FROM PERMITTING THE AWARD OR THE IMPLEMENTATION OF THE DATA PROCESSING CONTRACT FOR THE MEDICARE PROGRAM IN CALIFORNIA TO GO FORWARD UNTIL THE COMPTROLLER GENERAL HAS HAD THE OPPORTUNITY TO RENDER A DECISION ON THE MERITS OF PLAINTIFF'S PROTEST;

(B) THAT THE DEFENDANT AND HIS REPRESENTATIVES AND SUBORDINATES BE PERMANENTLY ENJOINED FROM AWARDING A CONTRACT FOR DATA PROCESSING SERVICES TO EDSF BASED ON THE REQUEST FOR PROPOSALS DESCRIBED HEREIN;

(C) THAT THIS COURT DECLARE AND ADJUDGE THAT THE DEFENDANT AND HIS REPRESENTATIVES AND SUBORDINATES ARE REQUIRED BY LAW TO REISSUE A REQUEST FOR PROPOSALS FOR THE DATA PROCESSING SERVICES IN QUESTION AND TO REEVALUATE, IN ACCORDANCE WITH LAW, PROPOSALS SUBMITTED PURSUANT TO THE NEW REQUEST FOR PROPOSALS; AND

(D) THAT PLAINTIFF BE AWARDED SUCH OTHER AND FURTHER RELIEF AS MAY BE JUST AND EQUITABLE UNDER THE CIRCUMSTANCES.

ON MARCH 11, 1975, THE COURT ISSUED A TEMPORARY RESTRAINING ORDER PREVENTING SSA FROM DIRECTLY OR INDIRECTLY PERMITTING THE AWARD OF A SUBCONTRACT TO EDSF UNTIL "*** THE DETERMINATION OF PLAINTIFF'S (OSI) APPLICATION FOR A PRELIMINARY INJUNCTION, OR UNTIL A DETERMINATION BY THE COMPTROLLER GENERAL OF THE UNITED STATES OF PLAINTIFF'S PROTEST ***, WHICHEVER DATE IS SOONER." THE HEARING ON THE MOTION FOR A PRELIMINARY INJUNCTION IS SCHEDULED FOR MARCH 21, 1975.

IT IS THE PRACTICE OF OUR OFFICE NOT TO RENDER A DECISION ON THE MERITS OF A PROTEST WHERE THE ISSUES INVOLVED ARE LIKELY TO BE DISPOSED OF IN LITIGATION BEFORE A COURT OF COMPETENT JURISDICTION. 4 CFR SEC. 20.11 (1974); MATTER OF NARTRON CORP., ET AL., 53 COMP. GEN. 730 (1974). HOWEVER, AN EXCEPTION TO THIS GENERAL POLICY EXISTS WHERE THE COURT EXPRESSES AN INTEREST IN RECEIVING OUR DECISION. 52 COMP. GEN. 706 (1973); MATTER OF DESCOMP, INC., 53 COMP. GEN. 522 (1974); MATTER OF DATA TEST CORPORATION, 54 COMP. GEN. 715 (1975). CONSEQUENTLY, EVEN THOUGH FROM OUR EXAMINATION OF OSI'S COMPLAINT AND SUPPORTING PAPERS IT APPEARS THAT MANY OF THE ISSUES INVOLVED IN THE PROTEST ARE NOW BEFORE THE UNITED STATES DISTRICT COURT, IT IS CLEAR THAT THE TEMPORARY RESTRAINING ORDER ISSUED CONTEMPLATES A DECISION BY OUR OFFICE IN THIS MATTER.

SINCE OSI'S PROTEST CONCERNS THE AWARD OF A SUBCONTRACT BY A PRIME CONTRACTOR OF THE GOVERNMENT, A QUESTION IS RAISED AS TO WHETHER OUR OFFICE SHOULD, AS A MATTER OF POLICY, CONSIDER THIS PROTEST. THE COURT, AS WELL AS SSA AND OSI (WHO WAS GIVEN THE OPPORTUNITY TO COMMENT ON THIS QUESTION), WAS MADE FULLY COGNIZANT, PRIOR TO THE ISSUANCE OF THE TEMPORARY RESTRAINING ORDER, THAT THIS QUESTION WAS THE INITIAL ISSUE WHICH OUR OFFICE HAD TO RESOLVE BEFORE THIS CASE COULD BE DEVELOPED UNDER OUR INTERIM BID PROTEST PROCEDURES AND STANDARDS (4 CFR SEC. 20.1 ET SEQ. (1974)), AND A DECISION ON THE MERITS ISSUED.

OSI PROTESTS THAT THE RFP SPECIFICATIONS ARE RESTRICTIVE, INCONSISTENT, CONFLICTING, VAGUE, AND BASED UPON A SYSTEM PREVIOUSLY PROPOSED BY EDSF. OSI ALSO CONTENDS THAT THERE WAS BIAS IN FAVOR OF EDSF IN THE NEGOTIATIONS CONDUCTED PRIOR TO SELECTION, SINCE ALTHOUGH GENERALIZED DATA CONCERNING THE OPERATION OF THE EXISTING EDSF ADP FACILITIES MANAGEMENT SYSTEM WAS MADE AVAILABLE TO OSI BY CBS, THE SPECIFIC DETAIL WAS NOT AVAILABLE TO OSI, EVEN THOUGH EDSF, AS THE INCUMBENT CONTRACTOR, HAD ACCESS TO THIS INFORMATION ON A DAILY BASIS. ALSO, OSI CONTENDS THAT CBS FAILED TO CLARIFY INCONSISTENCIES IN THE RFP WHEN ASKED BY OSI, YET MADE VARIOUS CLARIFICATIONS AFTER THE STATED CUT-OFF DATE FOR QUESTIONS AND ANSWERS. THIS BIAS WAS ALSO ALLEGEDLY EXHIBITED BY CBS'S FAILURE TO DISCUSS WITH OSI THE DIFFERENCES BETWEEN OSI'S AND EDSF'S APPROACHES, DESPITE THE FACT THAT OSI'S 1700 PAGE PROPOSAL WAS SIGNIFICANTLY DIFFERENT THAN EDSF'S AND THE SUBJECT OF THIS PROCUREMENT WAS A COMPLEX TECHNICAL ADP SYSTEM. FURTHERMORE, OSI CLAIMS THAT CBS'S LACK OF TECHNICAL EXPERTISE, IN PARTICULAR WITH REGARD TO THE IMPLEMENTATION OF A NEW SUBSYSTEM IN EDSF'S ADP SYSTEM, CAUSED CBS TO FAVOR THE INCUMBENT'S SYSTEM. OSI FURTHER ALLEGES THAT CBS DID NOT CONDUCT A PROPER COST ANALYSIS, AS IS REQUIRED BY THE CONTRACT WITH SSA, SINCE CBS ACCEPTED EDSF'S ESTIMATED COST OF THE PROPOSED ADP SYSTEM TO THE GOVERNMENT AT FACE VALUE. OSI CONCLUDES THAT, AS A CONSEQUENCE OF THESE ALLEGED DEFECTIVE PROCUREMENT PRACTICES, CBS'S SELECTION OF EDSF MAY NOT HAVE BEEN BASED ON AN OBJECTIVE EVALUATION OF THE PROPOSALS OF OSI AND EDSF AND THAT AN INDEPENDENT REVIEW SHOULD BE CONDUCTED. OSI ALSO NOTES THE LIKELIHOOD THAT THIS SUBCONTRACT PROCUREMENT PROCESS WAS A "SHAM," IN VIEW OF THE FACT THAT EDSF PROCESSES ABOUT 90 PERCENT OF ALL MEDICARE PART "B" CLAIMS HANDLED UNDER ADP SUBCONTRACTS AWARDED BY HEALTH INSURANCE CARRIERS PURSUANT TO THEIR PRIME CONTRACTS WITH SSA.

AS INDICATED ABOVE, A QUESTION IS RAISED AS TO WHETHER OUR OFFICE SHOULD, AS A MATTER OF POLICY, CONSIDER THIS SUBCONTRACT PROTEST. IN SO CONCERNING THE CIRCUMSTANCES UNDER WHICH WE WILL CONSIDER SUCH PROTESTS.

EXCEPT IN THIS CASE WHERE A PRIME CONTRACTOR IS A PURCHASING AGENT OF THE GOVERNMENT, THE PRIME CONTRACTOR IS NORMALLY AN INDEPENDENT CONTRACTOR, WHOSE METHOD OF SUBCONTRACTING IS SUBJECT ONLY TO THE CONDITIONS CONTAINED IN ITS CONTRACT WITH THE GOVERNMENT. IN VIEW OF THIS STATUS, OUR OFFICE HAS CONSISTENTLY RECOGNIZED THAT THE CONTRACTING PRACTICES AND PROCEDURES EMPLOYED BY PRIME CONTRACTORS IN THE AWARD OF SUBCONTRACTS ARE GENERALLY NOT SUBJECT TO THE STATUTORY AND REGULATORY REQUIREMENTS GOVERNING DIRECT PROCUREMENTS OF THE FEDERAL GOVERNMENT. SEE B-118129, MARCH 18, 1954; 37 COMP. GEN. 315 (1957); 41 ID. 424 (1961); 49 ID. 668 (1970).

HOWEVER, MANY GOVERNMENT CONTRACTS, SUCH AS SSA'S CONTRACT WITH CBS, CONTAIN A CLAUSE REQUIRING GOVERNMENT APPROVAL PRIOR TO THE PRIME CONTRACTOR'S AWARD OF SUBCONTRACTS OF A CERTAIN MAGNITUDE. SEE ARMED SERVICES PROCUREMENT REGULATION SECS. 7-104.23, 7-203.8, 23-201 (1974 ED.); FEDERAL PROCUREMENT REGULATIONS (FPR) SEC. 1-7.202-8 (1964 ED. AMEND. 123). WE HAVE OFTEN EXPRESSED THE VIEW THAT A CONTRACTING AGENCY OF THE FEDERAL GOVERNMENT SHOULD NOT APPROVE A SUBCONTRACT AWARD, WHERE IT HAS SUCH A CONTRACTUAL RIGHT, IF THE AWARD WOULD BE PREJUDICIAL TO THE INTERESTS OF THE GOVERNMENT, PARTICULARLY IN THE CASE WHERE THE PRIME CONTRACT IS OF A COST-REIMBURSEMENT TYPE AND THE COST OF THE SUBCONTRACT IS ULTIMATELY BORNE BY THE GOVERNMENT. SEE 37 COMP. GEN., SUPRA; 41 ID., SUPRA; 49 ID., SUPRA. WE ALSO HAVE EXPRESSED THE VIEW THAT THE QUESTION OF WHETHER SUBCONTRACT APPROVAL WOULD BE PREJUDICIAL TO THE INTERESTS OF THE GOVERNMENT IS ONE WHICH MUST BE RESOLVED BY RESPONSIBLE GOVERNMENT CONTRACTING OFFICIALS AFTER A THOROUGH CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH PROCUREMENT. SEE 46 COMP. GEN. 142 (1966); 49 ID., SUPRA; 51 ID. 678 (1972). WE ALSO HAVE FOUND THAT THE FRAME OF REFERENCE GUIDING SUCH DETERMINATIONS AS TO THE REASONABLENESS OF THE PRIME CONTRACTOR'S PROCUREMENT PROCESS IS GENERALLY THE "FEDERAL NORM" EMBODIED IN THE PROCUREMENT STATUTES AND IMPLEMENTING REGULATIONS, ALTHOUGH WE RECOGNIZE THE PROPRIETY AND NECESSITY OF VARIATIONS FROM ALL OF THE DETAILS OF THE "FEDERAL NORM" IN THE PROCUREMENT PRACTICES OF PRIME CONTRACTORS. SEE B-168522, JUNE 2, 1970; 49 COMP. GEN., SUPRA; B 172496, JULY 6, 1971; 51 COMP. GEN., SUPRA.

PRIOR TO OUR DECISION IN 51 COMP. GEN. 803 (1972), OUR OFFICE APPLIED THE FOREGOING PRINCIPLES TO INSURE THAT SUBCONTRACT AWARDS WERE NOT PREJUDICIAL TO THE INTERESTS OF THE GOVERNMENT, AND CONSIDERED PROTESTS OF THE AWARDS OF SUBCONTRACTS AS A MATTER OF COURSE WHERE THE GOVERNMENT HAD APPROVED THE SUBCONTRACT AWARDS AND THE PRIME CONTRACTS WERE OF A COST- REIMBURSEMENT TYPE. SEE E.G., 37 COMP. GEN. SUPRA; B 138830, JUNE 19, 1959; B-153884, AUGUST 3, 1964; B-172496, SUPRA. HOWEVER, WE QUESTIONED THE GOVERNMENT'S APPROVAL ONLY WHERE ILLEGAL OR IT WAS DEMONSTRATED THAT THE PROPOSED AWARD WAS DEFINITELY AGAINST THE INTERESTS OF THE GOVERNMENT. SEE B-168550, FEBRUARY 16, 1970; 37 COMP. GEN., SUPRA; 46 ID., SUPRA; 49 ID., SUPRA. WE ALSO, ON OCCASION, ENTERTAINED SUBCONTRACT PROTESTS WHERE THE USUAL LINES OF DISTINCTION BETWEEN THE PRIME AND SUBCONTRACT TIERS WERE CONSIDERED RELATIVELY UNIMPORTANT AND/OR WHERE THE GOVERNMENT WAS DIRECTLY INVOLVED IN THE SELECTION OF THE SUBCONTRACTOR. SEE 47 COMP. GEN. 223 (1967); 49 ID., SUPRA. FINALLY, WE CONSIDERED SUBCONTRACT PROTESTS WHERE THE PRIME CONTRACTOR WAS FOUND TO BE ACTING AS A PURCHASING AGENT OF AN AGENCY OF THE FEDERAL GOVERNMENT. SEE B-152946, MAY 14, 1964.

AS INDICATED ABOVE, OUR DECISION IN 51 COMP. GEN. 803 HAD THE EFFECT OF LIMITING OUR CONSIDERATION OF THESE PROTESTS. IN THAT CASE, WE DECIDED, AS A MATTER OF POLICY, NOT TO ENTERTAIN PROTESTS OF THE AWARDS OF SUBCONTRACTS WHERE THE FOLLOWING THREE CIRCUMSTANCES COEXISTED: THE PRIME CONTRACTOR WAS NOT ACTING AS A PURCHASING AGENT FOR THE GOVERNMENT, AWARD HAD ALREADY BEEN MADE, AND NEITHER FRAUD NOR BAD FAITH ON THE PART OF THE CONTRACTING OFFICER IN APPROVING THE AWARD WAS ALLEGED. WE CHANGED THE PAST POLICY OF CONSIDERING AS A MATTER OF COURSE ALL SUBCONTRACT PROTESTS, SINCE IT WAS FOUND THAT THE POSSIBILITY OF FINDING ADEQUATE JUSTIFICATION TO SUPPORT CANCELLATION OR TERMINATION OF A PROTESTED SUBCONTRACT WAS SO REMOTE WHERE THESE THREE CIRCUMSTANCES COEXISTED THAT CONSIDERATION OF SUCH PROTESTS UNDER OUR BID PROTEST PROCEDURES WOULD BE UNWARRANTED. WENT ON TO INDICATE THAT WE WOULD GIVE APPROPRIATE ATTENTION IN OUR AUDIT FUNCTIONS INVOLVING THE PRIME CONTRACT IN SUCH CASES TO ANY EVIDENCE INDICATING THAT THE COST TO THE GOVERNMENT WAS UNDULY INCREASED BECAUSE OF IMPROPER PROCUREMENT ACTIONS BY THE PRIME CONTRACTOR.

TO CLARIFY AND REDEFINE OUR POLICY REGARDING SUBCONTRACT PROTESTS, WE WILL NOT CONSIDER PROTESTS AGAINST THE AWARDS OF SUBCONTRACTS BY PRIME CONTRACTORS OF THE GOVERNMENT, UNLESS ONE OF THE APPROPRIATE CIRCUMSTANCES SET OUT BELOW EXISTS. THIS INCLUDES THOSE PROTESTS INVOLVING PRIME CONTRACTS OF A COST-REIMBURSEMENT TYPE WHERE THE SUBCONTRACTS COULD WELL HAVE A SIGNIFICANT EFFECT ON THE CONTRACT COSTS TO THE GOVERNMENT AND MIGHT BE PREJUDICIAL TO THE GOVERNMENT'S INTERESTS. FURTHERMORE, WE NO LONGER BELIEVE ANY VALID REASON EXISTS FOR MAKING ANY DISTINCTION BASED ON WHETHER AWARD HAS BEEN MADE IN DETERMINING WHETHER OR NOT WE WILL CONSIDER A PARTICULAR SUBCONTRACT PROTEST. OUR DECISION IN 51 COMP. GEN. 803 IS MODIFIED IN THIS REGARD. WE BELIEVE THE POSSIBILITY OF FINDING ADEQUATE JUSTIFICATION TO RECOMMEND REMEDIAL ACTION IN THE CASE OF A PROTESTED SUBCONTRACT IS ORDINARILY REMOTE. MOREOVER, MANY MATTERS SURROUNDING THE REVIEW OF AWARDS OF SUBCONTRACTS ARE MATTERS OF CONTRACT ADMINISTRATION, WHICH WE BELIEVE ARE PRIMARILY FOR RESOLUTION BY THE CONTRACTOR OR CONTRACTING AGENCY AND WHICH ARE, THEREFORE, INAPPROPRIATE FOR OUR OFFICE TO CONSIDER. WE WILL CONTINUE TO ISSUE DECISIONS ON AWARDS MADE BY CONTRACTORS ACTING AS PURCHASING AGENTS OF THE GOVERNMENT, SINCE THE LEGAL EFFECT OF THE TRANSACTIONS MADE BY SUCH CONTRACTORS ON BEHALF OF THE GOVERNMENT IS TO DIRECTLY BIND THE FEDERAL GOVERNMENT. SEE 21 COMP. GEN. 682 (1942).

WE WILL ALSO CONSIDER PROTESTS OF THE AWARDS OF SUBCONTRACTS WHERE IT HAS BEEN SHOWN THAT THE FEDERAL GOVERNMENT HAS SO DIRECTLY OR ACTIVELY PARTICIPATED IN THE SELECTION OF THE SUBCONTRACTOR THAT THE NET EFFECT OF THE GOVERNMENT PARTICIPATION WAS TO CAUSE OR CONTROL THE REJECTION OR SELECTION OF A POTENTIAL SUBCONTRACTOR, OR HAS IMPOSED SUCH CONDITIONS ON THE CONTRACTOR AS TO SIGNIFICANTLY LIMIT THE SOURCES TO WHICH SUBCONTRACTS COULD HAVE BEEN AWARDED. EXAMPLES OF DECISIONS IN WHICH WE FOUND THIS DEGREE OF GOVERNMENT DIRECT OR ACTIVE PARTICIPATION IN SUBCONTRACTOR SELECTION OR LIMITATION AND THE TYPE OF CIRCUMSTANCE WHICH WE WILL CONTINUE TO CONSIDER UNDER OUR BID PROTEST PROCEDURES ARE AS FOLLOWS:

THE GOVERNMENT LIMITED THE SUBCONTRACTOR SOURCES AND EXERCISED CONTROL OVER EVERY ASPECT OF PROCUREMENTS, SUCH THAT THE PRIME CONTRACTORS WERE "MERE CONDUITS." 47 COMP. GEN., SUPRA.

THE GOVERNMENT REQUIRED THAT THE PRIME CONTRACTOR PROCURE CERTAIN ANCILLARY EQUIPMENT FROM A PARTICULAR COMPANY. B-162437, AUGUST 6, 1968.

THE GOVERNMENT "DIRECTLY PARTICIPATED IN THE DECISION" TO REJECT A SUBCONTRACT PROPOSAL AND EXCLUDE IT FROM COMPETITION ON RESOLICITATION BASED ON THE GOVERNMENT'S NEGATIVE PREAWARD SURVEY PERFORMED AT THE PRIME CONTRACTOR'S REQUEST. 49 COMP. GEN., SUPRA.

THE AGENCY SEVERELY LIMITED THE PRIME CONTRACTOR'S RIGHTS OF SELECTION OF SUBCONTRACTORS AND WAS INSTRUMENTAL IN DRAFTING THE TERMS OF THE SUBCONTRACT. B-170324, APRIL 19, 1971.

THE GOVERNMENT HINDERED THE TESTING AND QUALIFICATION OF A POTENTIAL SUBCONTRACTOR'S PRODUCT TO SUCH AN EXTENT THAT THE SUBCONTRACTOR COULD NOT RECEIVE VARIOUS AWARDS. B-174521, MARCH 24, 1972.

THE GOVERNMENT SPECIFICALLY RECOMMENDED AN AWARD OF A SUBCONTRACT TO A PARTICULAR COMPANY. 51 COMP. GEN. 678.

THE PRIME CONTRACTOR REJECTED A POTENTIAL SUBCONTRACTOR SINCE THE GOVERNMENT REQUIRED IN THE SOLE-SOURCE PRIME CONTRACT THAT ONLY THE PRODUCT MANUFACTURED BY ANOTHER COMPANY COULD BE USED. MATTER OF CALIFORNIA MICROWAVE, INC., 54 COMP. GEN. 231 (1974).

HOWEVER, WHERE THE ONLY GOVERNMENT INVOLVEMENT IN THE SUBCONTRACTOR SELECTION PROCESS IS ITS APPROVAL OF THE SUBCONTRACT AWARD OR PROPOSED AWARD (TO BE CONTRASTED WITH THE CIRCUMSTANCES SET OUT ABOVE WHERE DIRECT OR ACTIVE GOVERNMENT PARTICIPATION IN OR LIMITATION OF SUBCONTRACTOR SELECTION EXISTED), WE WILL ONLY REVIEW THE AGENCY'S APPROVAL ACTION IF FRAUD OR BAD FAITH IS SHOWN. SEE 51 COMP. GEN. 803; MATTER OF AIRCRAFT SYSTEMS CORPORATION, B-181676, AUGUST 7, 1974; MATTER OF LITTON INDUSTRIAL PRODUCTS, INC., B-181676, NOVEMBER 26, 1974; MATTER OF PROBE SYSTEMS INCORPORATED, B-182236, JANUARY 2, 1975. HOWEVER, WE STILL ARE OF THE VIEW THAT THE GENERAL PRINCIPLES SET OUT ABOVE CONCERNING THE STANDARDS AND SCOPE OF AN AGENCY'S REVIEW AND APPROVAL OF ITS PRIME CONTRACTORS' SUBCONTRACTOR SELECTION AND PROCEDURES ARE STILL VALID AND FOR APPLICATION BY THE CONTRACTING AGENCIES.

WE WILL ALSO CONSIDER, UNDER APPROPRIATE CIRCUMSTANCES, PROTESTS OF AWARDS MADE BY PRIME CONTRACTORS ACTING UNDER THOSE COST-TYPE MANAGEMENT CONTRACTS AND SUCH OTHER CASES WHERE WE FIND THE CONTRACTOR'S AWARD WAS MADE "FOR" AN AGENCY OF THE FEDERAL GOVERNMENT. SEE 4 C.F.R. SEC. 20.1(A) (1974). FOR EXAMPLE, WE HAVE ALWAYS CONSIDERED PROTESTS OF AWARDS MADE "FOR" THE ATOMIC ENERGY COMMISSION (AEC) (NOW THE ENERGY RESOURCES DEVELOPMENT ADMINISTRATION) BY PRIME MANAGEMENT CONTRACTORS WHO OPERATED AND MANAGED AEC FACILITIES. SEE B 152946, SUPRA; B-169942, JULY 27, 1970; B-170202, SEPTEMBER 1, 1970; B 172959(2), SEPTEMBER 10, 1971; 51 COMP. GEN. 329 (1971); B-179462, NOVEMBER 12, 1973. ALSO, SEE 49 COMP. GEN., SUPRA, AND LOMBARD CORPORATION V. RESOR, 321 F. SUPP. 687 (D.D.C. 1970), WHERE THE GOVERNMENT PRIME CONTRACTOR, WHO MANAGED A GOVERNMENT-OWNED CONTRACTOR OPERATED PLANT, PURCHASED EQUIPMENT FOR THE PLANT.

ALSO, WHERE APPROPRIATE, WE WILL CONSIDER QUESTIONS CONCERNING THE AWARDS OF SUBCONTRACTS SUBMITTED TO OUR OFFICE BY THOSE OFFICIALS OF FEDERAL AGENCIES, WHO ARE ENTITLED TO ADVANCE DECISIONS FROM OUR OFFICE. SEE 31 U.S.C. 74 (1970); 36 COMP. GEN. 311 (1956).

BASED ON THE ABOVE DISCUSSION AND ON THE RECORD BEFORE US, WE DO NOT BELIEVE OSI'S PROTEST OF CBS'S AWARD OF THE ADP SUBCONTRACT TO EDSF IS APPROPRIATE FOR CONSIDERATION ON THE MERITS. IN MAKING THIS DETERMINATION, WE HAVE CONSIDERED THE CONTENTIONS AND ARGUMENTS MADE BY OSI TO OUR OFFICE AND TO THE UNITED STATES DISTRICT COURT CONTAINED IN OSI'S MEMORANDUM, AFFIDAVIT AND MOTIONS FOR A TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION. IN ADDITION, WE HAVE REVIEWED SSA'S CONTRACT WITH CBS AND SSA'S CONTRACTING AND SUBCONTRACTING GUIDELINES FURNISHED TO CBS.

THE RECORD INDICATES THAT SSA GAVE CBS PROCEDURAL GUIDANCE ON HOW TO STRUCTURE THE RFP TO ENHANCE COMPETITION, HOW TO PROPERLY AND COMPLETELY SET OUT ADP REQUIREMENTS AND EVALUATION CRITERIA, AND HOW TO CONDUCT APPROPRIATE NEGOTIATIONS AND EVALUATE THE PROPOSALS IT MIGHT RECEIVE. MOREOVER, IN ADDITION TO SSA'S RIGHT OF APPROVAL OF THE EDSF SELECTION, SSA REPRESENTATIVES APPARENTLY ALSO REVIEWED THE RFP, ATTENDED THE OFFERORS' CONFERENCE AND THE NEGOTIATION SESSIONS WITH EACH OFFEROR, AND ACCOMPANIED CBS DURING ON-SITE VISITS TO THE OFFERORS. SSA ALSO EVIDENTLY ASKED AND ANSWERED QUESTIONS DURING THESE CONTACTS WITH THE OFFERORS. IS OUR VIEW THAT, ON THE RECORD, THE NATURE OF THE SSA INVOLEMENT IN THE SUBCONTRACT PROCUREMENT PROCESS IS NOT SUFFICIENT CAUSE FOR OUR OFFICE TO CONSIDER OSI'S PROTEST. THERE IS NO INDICATION THAT THE CBS SELECTION OF EDSF WAS NOT INDEPENDENTLY MADE OR THAT SSA'S INVOLVEMENT IN THIS PROCUREMENT HAD THE NET EFFECT OF CAUSING OR CONTROLLING EDSF'S SELECTION.

THE CBS CONTRACT WITH SSA HAS A SPECIFIC CONDITION REQUIRING THAT CBS CONDUCT A PROPER COST ANALYSIS, WHICH OSI CONTENDS WAS NOT DONE. THIS REQUIREMENT IS ALSO IMPOSED BY FPR SEC. 1-3.807-10 (1964 ED. AMEND. 124). HOWEVER, THE CONTENTION THAT THIS CONTRACTUAL AND REGULATORY CONDITION WAS VIOLATED IN THE AWARD TO EDSF SHOULD NOT, IN AND OF ITSELF, FORM A BASIS FOR OUR CONSIDERATION OF OSI'S PROTEST, SINCE WE BELIEVE THAT THE ENFORCEMENT OF SUCH REQUIREMENTS IS THE TYPE OF MATTER OF CONTRACT ADMINISTRATION WHICH IS APPROPRIATE FOR RESOLUTION BY THE AGENCY CONCERNED AND IS NOT PROPER FOR RESOLUTION BY OUR OFFICE IN THE ABSENCE OF EVIDENCE INDICATING BAD FAITH OR FRAUD BY THE AGENCY CONCERNED.

ALSO, THERE IS NO EVIDENCE INDICATING THAT SSA'S APPROVAL OF THE AWARD TO EDSF INVOLVED FRAUD OR BAD FAITH. MOREOVER, CBS IS NOT A PURCHASING AGENT OF SSA, NOR IS THIS ADP PROCUREMENT "FOR" SSA.

ALTHOUGH WE WILL NOT CONSIDER THE PROTEST ON ITS MERITS, APPROPRIATE ATTENTION IN OUR AUDIT FUNCTIONS INVOLVING THE AWARD OF THESE MEDICARE PART "B" ADP SUBCONTRACTS WILL BE GIVEN TO ANY EVIDENCE INDICATING THAT THE COST TO THE GOVERNMENT HAS BEEN UNDULY INCREASED BECAUSE OF IMPROPER PROCUREMENT ACTIONS BY THE PRIME CONTRACTOR.