B-218389.2, AUG 30, 1985, 85-2 CPD 252

B-218389.2, AUG 30, 1985, 85-2 CPD 252

CONTRACTS - NEGOTIATION - AWARDS - INITIAL PROPOSAL BASIS - PROPRIETY DIGEST: 1. AWARD ON AN INITIAL PROPOSAL BASIS ALMOST 11 MONTHS AFTER THE RECEIPT OF PROPOSALS IS NOT IN ITSELF IMPROPER, ALTHOUGH THE CONTRACTING OFFICER SHOULD CONSIDER WHETHER EVENTS THAT HAVE OCCURRED IN THE INTERIM INDICATE THAT THE GOVERNMENT WOULD BENEFIT BY HOLDING DISCUSSIONS AND REQUESTING BEST AND FINAL OFFERS. CONTRACTS - NEGOTIATION - OFFERS OR PROPOSALS - REVISIONS - COST 2. ALTHOUGH AN OFFEROR MAY CONDITION AN EXTENSION OF THE ACCEPTANCE PERIOD FOR ITS OFFER ON THE AGENCY'S ACCEPTANCE OF A REVISED COST PROPOSAL, THE OFFEROR MAY NOT IMPOSE SUCH A REQUIREMENT 2 MONTHS AFTER IT GRANTS AN UNCONDITIONAL EXTENSION.

GEMMA CORPORATION:

GEMMA CORPORATION PROTESTS THE AWARD OF A CONTRACT TO ALM, INCORPORATED UNDER REQUEST FOR PROPOSALS (RFP) NO. N00019-83-R-0061, ISSUED BY THE NAVAL AIR SYSTEMS COMMAND. THE PROTESTER ALLEGES THAT THE AGENCY ABUSED ITS DISCRETION WHEN IT MADE THE AWARD ON THE BASIS OF INITIAL PROPOSALS ALMOST A YEAR AFTER THOSE PROPOSALS HAD BEEN SUBMITTED, WITH KNOWLEDGE THAT AT LEAST ONE OFFEROR, GEMMA, WANTED TO REVISE ITS COST PROPOSAL DOWNWARD.

WE DENY THE PROTEST IN PART AND DISMISS IT IN PART.

BACKGROUND

THE RFP WAS ISSUED ON JANUARY 9, 1984, REQUESTING PROPOSALS FOR TECHNICAL AND MANAGEMENT SERVICES IN SUPPORT OF THE COMPUTER RESOURCES AND AVIONICS SYSTEMS DIVISION AND THE AVIONICS EQUIPMENT DIVISION OF THE NAVAL AIR SYSTEMS COMMAND. THE SOLICITATION WAS DIVIDED INTO FOUR LOTS, PERMITTING THE AWARD OF FOUR SEPARATE, INDEFINITE QUANTITY CONTRACTS FOR A BASIC YEAR AND 2 OPTION YEARS; OFFERORS COULD SUBMIT PROPOSALS FOR AS MANY LOTS AS THEY WISHED.

GEMMA'S PROTEST INVOLVES ONLY LOT III, FOR WHICH EIGHT PROSPECTIVE PRIME CONTRACTORS SUBMITTED PROPOSALS ON JUNE 1, 1984. SOMETIME AFTER THAT DATE, THE NAVAL AIR SYSTEMS COMMAND IMPOSED A CEILING ON THE USE OF CONTRACTOR SUPPORT SERVICES FOR FISCAL YEAR 1985 THAT REQUIRED A REEVALUATION OF THE NEED FOR THE SERVICES COVERED BY LOT III. THIS, ALONG WITH EXTENSIVE REVIEWS OF THE PROPOSALS AND PREAWARD SURVEYS OF THE OFFERORS AND PROPOSED SUBCONTRACTORS, REQUIRED THE NAVY TO REQUEST OFFERORS TO EXTEND THEIR ACCEPTANCE PERIODS ON FOUR OCCASIONS. THE LAST EXTENSIONS FOR LOT III WERE EFFECTIVE UNTIL APRIL 30, 1985.

THE RFP STATED THAT TECHNICAL EXCELLENCE WOULD BE THE MOST SIGNIFICANT EVALUATION FACTOR, ALTHOUGH PRICE WOULD ALSO BE CONSIDERED. UPON COMPLETING ITS TECHNICAL EVALUATION, THE NAVY FOUND ONLY FOUR OF THE PROPOSALS FOR LOT III TO BE ACCEPTABLE. OFFERORS' RATINGS AND PROPOSED PRICES WERE AS FOLLOWS:

OFFEROR RATING PRICE

ALM EXCELLENT $3,431,006 SETAC GOOD 3,547,110 GEMMA VERY GOOD 4,105,712 VEDA VERY GOOD 4,311,483 4,105,712 VEDA VERY GOOD 4,311,483

SINCE ALM'S PRICE COMPARED FAVORABLY WITH THE PRICES FOR LOTS II AND IV (WHICH WERE IDENTICAL EXCEPT THAT THEY HAD NOT BEEN SET ASIDE FOR SMALL BUSINESS) AND WITH THE GOVERNMENT ESTIMATE, AND SINCE ALM'S TECHNICAL RATING WAS EXCELLENT, THE NAVY DECIDED NOT TO HOLD DISCUSSIONS OR REQUEST BEST AND FINAL OFFERS. IT MADE AN AWARD TO ALM ON THE BASIS OF ITS INITIAL PROPOSAL ON APRIL 26, 1985.

TWO DAYS BEFORE THIS, ON APRIL 24, 1985, GEMMA HAD ATTEMPTED TO SUBMIT A REVISED COST PROPOSAL. ACCORDING TO THE PROTESTER, IT WAS ABLE TO LOWER ITS PRICE AS A RESULT OF REDUCTIONS IN OVERHEAD MADE DURING THE PREVIOUS YEAR. THE CONTRACTING OFFICER, HOWEVER, CONSIDERED THIS SUBMISSION TO BE A LATE MODIFICATION AND REFUSED TO OPEN OR EVALUATE IT. ON APRIL 29, 1985, GEMMA PROTESTED TO THE CONTRACTING OFFICER, CONTENDING THAT THE MOST RECENT EXTENSION OF ITS ACCEPTANCE PERIOD, WHICH HAD OCCURRED ON FEBRUARY 28, 1985, HAD BEEN CONDITIONED ON THE NAVY'S ACCEPTANCE OF A REVISED COST PROPOSAL. WHEN THE CONTRACTING OFFICER INFORMED GEMMA THAT A CONTRACT FOR LOT III ALREADY HAD BEEN AWARDED, GEMMA PROTESTED TO OUR OFFICE.

GEMMA'S PROTEST

GEMMA PRESENTS TWO MAJOR ARGUMENTS:

(1) BECAUSE INITIAL PROPOSALS HAD BEEN SUBMITTED ALMOST 11 MONTHS BEFORE AND THE NAVY KNEW THAT GEMMA WISHED TO REVISE ITS COST PROPOSAL DOWNWARD, THE NAVY WAS NOT ASSURED THAT IT WOULD RECEIVE A FAIR AND REASONABLE PRICE, SO AS TO JUSTIFY AN AWARD TO ALM ON THE BASIS OF ITS INITIAL PROPOSAL; AND

(2) THE NAVY'S REFUSAL TO PERMIT GEMMA TO REVISE ITS COST PROPOSAL IN CONJUNCTION WITH THE EXTENSION OF ITS ACCEPTANCE PERIOD WAS ARBITRARY AND CAPRICIOUS.

AGENCY RESPONSE

THE NAVY RESPONDS THAT THE RFP CONTAINED THE STANDARD CLAUSE APPRISING OFFERORS THAT AWARD MIGHT BE BASED UPON INITIAL PROPOSALS. ACCORDING TO THE NAVY, THIS NOTICE, IN CONJUNCTION WITH THE CONTRACTING OFFICER'S DETERMINATION THAT ALM'S TECHNICALLY EXCELLENT PROPOSAL ALSO OFFERED THE LOWEST PRICE, AND THAT THIS PRICE WAS FAIR AND REASONABLE, JUSTIFIED AN AWARD TO THAT FIRM BASED ON ITS INITIAL PROPOSAL. THE NAVY FURTHER ARGUES THAT THE PASSAGE OF 11 MONTHS BETWEEN THE RECEIPT OF PROPOSALS AND THE AWARD DID NOT AFFECT THE QUALITY OF THE COMPETING TECHNICAL PROPOSALS.

REGARDING ITS DECISION NOT TO CONSIDER GEMMA'S REVISED COST PROPOSAL, THE NAVY ARGUES THAT THE STANDARD LATE PROPOSALS CLAUSE, ALSO INCLUDED IN THE RFP, REQUIRES THE REJECTION OF ANY MODIFICATION SUBMITTED AFTER THE DUE DATE FOR INITIAL PROPOSALS UNLESS IT IS IN RESPONSE TO A REQUEST FOR BEST AND FINAL OFFERS. THE NAVY MAINTAINS THAT A CONTRACTING OFFICER MAY CONSIDER PRICE REVISIONS IN CONJUNCTION WITH A REQUEST FOR EXTENSIONS, BUT IS NOT REQUIRED TO DO SO. IN ANY EVENT, THE NAVY ARGUES, GEMMA WAIVED THE RIGHT TO REVISE ITS COST PROPOSAL WHEN IT AGREED, WITHOUT EXCEPTION, TO EXTEND ALL TERMS, COSTS, AND CONDITIONS OF ITS OFFER UNTIL APRIL 30, 1985. ACCORDING TO THE NAVY, GEMMA SHOULD BE ESTOPPED FROM DENYING THE TERMS OF ITS OWN EXTENSION.

FINALLY, THE NAVY STATES THAT WHILE IT NEVER EXAMINED GEMMA'S REVISED COST PROPOSAL, IT DOUBTS THAT THE PROTESTER COULD HAVE LOWERED ITS PRICE ENOUGH TO OVERCOME THE SIGNIFICANT ADVANTAGE HELD BY ALM'S INITIAL PROPOSAL.

GAO ANALYSIS

(1) AWARD ON INITIAL PROPOSAL BASIS

AS A GENERAL RULE, A CONTRACTING AGENCY MAY MAKE AN AWARD ON THE BASIS OF INITIAL PROPOSALS, WITHOUT HOLDING DISCUSSIONS OR REQUESTING BEST AND FINAL OFFERS, PROVIDED THAT (1) THE SOLICITATION ADVISES OFFERORS OF THIS POSSIBILITY, AND (2) THERE HAS BEEN ADEQUATE COMPETITION TO CLEARLY DEMONSTRATE THAT THE AWARD WILL RESULT IN A FAIR AND REASONABLE PRICE. CONSOLIDATED INDUSTRIES, INC., B-210183, AUG. 25, 1983, 83-2 CPD PARA. 249; DEFENSE ACQUISITION REGULATION (DAR) SEC. 3-805.1, REPRINTED IN 32 C.F.R. PTS. 1-39 (1984). /1/

HERE, THE RFP CONTAINED THE REQUISITE NOTICE AND THE CONTRACTING OFFICER MADE THE REQUISITE DETERMINATION. HOWEVER, THE PROTESTER CONTENDS THAT THE CONTRACTING OFFICER'S DETERMINATION WAS UNREASONABLE DUE TO THE PASSAGE OF TIME AND GEMMA'S ATTEMPT TO REDUCE ITS PRICE. RELYING ON OUR DECISION IN 47 COMP.GEN. 279 (1967), GEMMA IN EFFECT ARGUES THAT WHENEVER A CONTRACTING OFFICER RECEIVES A LATE MODIFICATION THAT REDUCES ONE OFFEROR'S PRICE, HE OR SHE IS REQUIRED TO OPEN NEGOTIATIONS WITH ALL OFFERORS.

IN OUR OPINION, THE CONTRACTING OFFICER SHOULD HAVE CONSIDERED EVENTS THAT MAY HAVE OCCURRED DURING THE 11 MONTHS IN DETERMINING WHETHER DISCUSSIONS AND BEST AND FINAL OFFERS WERE NECESSARY. HOWEVER, THE PASSAGE OF 11 MONTHS DID NOT, AS GEMMA ARGUES, IN ITSELF ESTABLISH THAT THE PRICES OFFERED INITIALLY WERE NO LONGER FAIR AND REASONABLE. THE ONLY EVIDENCE THAT GEMMA PREVENTS IS ITS OWN PRICE REDUCTION.

OUR DECISION IN 47 COMP.GEN. 279, DOES NOT, AS GEMMA ARGUES, REQUIRE A CONTRACTING OFFICER AUTOMATICALLY TO OPEN NEGOTIATIONS WHENEVER ONE OFFEROR SUBMITS A LATE MODIFICATION THAT REDUCES ITS PRICE. IN THE CITED CASE, THE TECHNICALLY SUPERIOR OFFEROR HAD ATTEMPTED, BY MEANS OF A LATE MODIFICATION, TO REDUCE ITS PRICE FROM $795,397 TO $636,317. WHILE THIS COULD NOT BE ACCEPTED, WE FOUND THAT THE CONTRACTING OFFICER SHOULD HAVE CONDUCTED DISCUSSIONS, RATHER THAN MAKING AN AWARD ON THE BASIS OF INITIAL PROPOSALS, BECAUSE THE LATE MODIFICATION INDICATED THAT THE GOVERNMENT WOULD "BENEFIT GREATLY" FROM DOING SO.

WE CANNOT SAY THAT THE SAME SITUATION WAS PRESENT HERE. AS NOTED ABOVE, ALM'S TECHNICAL PROPOSAL WAS CONSIDERED SUPERIOR TO GEMMA'S, AND THE RFP ESTABLISHED TECHNICAL EXCELLENCE AS THE MOST SIGNIFICANT EVALUATION FACTOR. ALTHOUGH GEMMA'S MODIFICATION WOULD HAVE REDUCED ITS PRICE FROM $4,105,712 TO $3,516,675, ALM'S PRICE WOULD HAVE REMAINED LOW BY $85,669. THEREFORE, THE CONTRACTING OFFICER'S DECISION TO MAKE AN AWARD ON AN INITIAL PROPOSAL BASIS PROVIDES NO REASON TO QUESTION THE AWARD TO ALM. WE DENY GEMMA'S PROTEST ON THIS GROUND.

(2) GEMMA'S PRICE REDUCTION

AS FOR GEMMA'S ARGUMENT THAT THE NAVY WAS REQUIRED TO CONSIDER ITS REVISED COST PROPOSAL, WE HAVE RECOGNIZED THAT, UNLESS SPECIFICALLY PROHIBITED BY THE AGENCY BEFOREHAND, AN OFFEROR MAY SUBMIT A PRICE REDUCTION IN CONJUNCTION WITH AN EXTENSION OF ITS ACCEPTANCE PERIOD. THE AGENCY'S ACCEPTANCE OF SUCH A REDUCTION, HOWEVER, CONSTITUTES DISCUSSIONS, SO THAT ALL OTHER OFFERORS IN THE COMPETITIVE RANGE MUST ALSO BE GIVEN AN OPPORTUNITY TO REVISE THEIR PROPOSALS. SEE UNITED ELECTRIC MOTOR CO., INC., B-191996, SEPT. 18, 1978, 78-2 CPD PARA. 206; ASTRONAUTICS CORPORATION OF AMERICA, B-185943, NOV. 9, 1976, 76-2 CPD PARA. 391. THUS, THE AGENCY COULD NOT HAVE SIMPLY ACCEPTED GEMMA'S REVISED COST PROPOSAL. MOREOVER, GEMMA FIRST CLAIMED THAT THE EXTENSION OF ITS ACCEPTANCE PERIOD UNTIL APRIL 30, 1985 WAS CONDITIONED ON THE NAVY'S ACCEPTANCE OF A REVISED COST PROPOSAL 2 MONTHS AFTER IT HAD GRANTED THE GOVERNMENT AN UNCONDITIONAL EXTENSION. GEMMA MAY NOT ADD A CONDITION TO ITS EXTENSION AFTER THE FACT. IN OUR OPINION, ANY PRICE REDUCTION CLEARLY MUST BE OFFERED AT THE SAME TIME AS THE EXTENSION, NOT, AS HERE, WEEKS OR MONTHS LATER. THE PROPOSED REDUCTION WAS A MODIFICATION OF GEMMA'S INITIAL PROPOSAL, AND THE NAVY'S TREATMENT OF IT ACCORDING TO THE RULES GOVERNING LATE MODIFICATIONS WAS NEITHER ARBITRARY NOT CAPRICIOUS.

OTHER ISSUES

GEMMA RAISES A NUMBER OF OTHER BASES OF PROTEST THAT WE EITHER FIND WITHOUT MERIT OR WILL NOT CONSIDER. FOR EXAMPLE, GEMMA COMPLAINS THAT THE NAVY VIOLATED DAR, SEC. 3-508.2(B) WHEN IT AWARDED A CONTRACT UNDER A SMALL BUSINESS SET-ASIDE WITHOUT NOTIFYING THE UNSUCCESSFUL OFFERORS OF THE PROPOSED AWARD. THE PURPOSE OF THIS SECTION IS TO ALLOW THESE OFFERORS AN OPPORTUNITY TO CHALLENGE THE SMALL BUSINESS SIZE STATUS OF THE SUCCESSFUL OFFEROR. SINCE GEMMA HAS NOT QUESTIONED ALM'S STATUS AS A SMALL BUSINESS, AND SINCE GEMMA ADMITTEDLY LEARNED OF THE AWARD 4 DAYS AFTER IT OCCURRED, WE DO NOT BELIEVE THAT THE PROTESTER SUFFERED ANY PREJUDICE FROM THE AGENCY'S ALLEGED FAILURE TO COMPLY WITH THE REGULATION.

GEMMA ALSO CONTENDS THAT PROPOSALS MAY NOT HAVE BEEN EVALUATED IN ACCORD WITH LISTED CRITERIA, SINCE WITH THE IMPOSITION OF A CEILING ON CONTRACTOR SUPPORT SERVICES, COST MAY HAVE BECOME MORE IMPORTANT THAN INITIALLY INDICATED. WE FIND NO SUPPORT FOR THIS IN THE EVALUATION RECORD, AND GEMMA HAS OFFERED ONLY ITS SPECULATIVE STATEMENT.

WE THEREFORE DENY THE PROTEST ON THE ABOVE BASES.

IN ITS COMMENTS ON THE AGENCY REPORT, GEMMA RECITES A NUMBER OF OTHER FACTS THAT, IN OUR OPINION, DO NOT STATE A CLAIM FOR WHICH RELIEF MAY BE GRANTED. FOR EXAMPLE, GEMMA DISCUSSES THE TIMING AND IMPLICATIONS OF A PREAWARD SURVEY AND ALLEGES THAT A CONTRACTING OFFICIAL TOLD IT ON TWO OCCASIONS, ONCE ONLY 2 DAYS BEFORE THE AWARD, THAT THE NAVY WOULD REQUEST BEST AND FINAL OFFERS. WE ARE NOT AWARE OF ANY STATUTE OR REGULATION THAT THESE ALLEGED ACTIONS VIOLATE, AND GEMMA HAS CITED NONE. WE THEREFORE DISMISS THESE BASES OF PROTEST.

THE PROTEST IS DENIED IN PART AND DISMISSED IN PART.

/1/ THE DEFENSE ACQUISITION REGULATION APPLIES HERE BECAUSE THE SOLICITATION WAS ISSUED BEFORE THE APRIL 1, 1984, EFFECTIVE DATE OF THE FEDERAL ACQUISITION REGULATION, 48 C.F.R. CH.1 (1984).