B-231857.6, Oct 10, 1989, 89-2 CPD 330

B-231857.6: Oct 10, 1989

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That awardee's offer was materially unbalanced because the awardee charged more for the same services in the first 3 years than it did in the last 2 years of fixed-price contract and that agency improperly determined that awardee's proposal was technically acceptable is affirmed. Examination of subcontractor pricing is not required in fixed-price contracting. Record shows that agency's evaluation was reasonable. Canaveral contended that the Navy: (1) should have rejected Leadermar's offer either as materially unbalanced or as so grossly front-loaded that payment made under the contract would represent advanced payments. We concluded that Leadermar's prices were not mathematically unbalanced because the higher prices charged in the first 3 contract years merely reflected Leadermar's higher facility rental costs during the early years of the contract.

B-231857.6, Oct 10, 1989, 89-2 CPD 330

PROCUREMENT - Bid Protests - GAO procedures - GAO decisions - Reconsideration DIGEST: Prior decision denying protest which alleged, among other things, that awardee's offer was materially unbalanced because the awardee charged more for the same services in the first 3 years than it did in the last 2 years of fixed-price contract and that agency improperly determined that awardee's proposal was technically acceptable is affirmed, because uneven pricing between contract years corresponds to awardee's uneven facility rental costs, examination of subcontractor pricing is not required in fixed-price contracting, and record shows that agency's evaluation was reasonable.

Canaveral Maritime, Inc.-- Request for Reconsideration:

Canaveral Maritime, Inc. requests reconsideration of our decision Canaveral Maritime, Inc., B-231857.4; B-231857.5, May 22, 1989, 89-1 CPD Para. 484, denying in part and dismissing in part Canaveral's protest of the Department of the Navy's award of a 5-year, fixed-price contract to Leadermar, Inc., under request for proposals (RFP) No. N00033-88-R-4001 for layberth services. We affirm our decision.

In its original protest, Canaveral contended that the Navy: (1) should have rejected Leadermar's offer either as materially unbalanced or as so grossly front-loaded that payment made under the contract would represent advanced payments; (2) improperly evaluated the dredging aspects of Leadermar's technical proposal; (3) abused its discretion in not evaluating proposal pricing on a present value basis; and (4) amended evaluation factors and award criteria without giving notice of the alterations to Canaveral. The request for reconsideration concerns only the first two contentions.

In our initial decision, we concluded that Leadermar's prices were not mathematically unbalanced because the higher prices charged in the first 3 contract years merely reflected Leadermar's higher facility rental costs during the early years of the contract. Regarding Canaveral's contention that the Navy improperly evaluated Leadermar's technical proposal, we found that the record supported the Navy's technical evaluation and that the evaluation was consistent with the criteria found in the solicitation. Consequently, we denied the protest on both grounds.

In its request for reconsideration, Canaveral contends our decision is erroneous in two respects. First, with regard to the unbalanced pricing/advanced payments issue, Canaveral argues that the decision is contrary to law and violates fundamental principles underlying the federal procurement system. Second, with regard to the propriety of the Navy's evaluation of Leadermar's technical proposal, Canaveral argues that the record did not support our factual conclusions.

Canaveral asserts that our May 22 decision overlooks the fact that Leadermar's pricing is front-loaded, since Leadermar is charging more for services performed in the first 3 years than it is charging for the same services in the last 2 years. Canaveral claims that we improperly focused on Leadermar's pricing and costs, and disregarded the effect on Leadermar's offer of Leadermar's subcontract with Gate Maritime Properties, Inc. Leadermar subcontracted with Gate for the lease of a facility and improvements to be used in providing the contract services. Gate priced the facility lease so that Leadermar's monthly rental payments to Gate during the first 3 years were more than 4 times the amount of its monthly rental payments in the last 2 years. Canaveral urges that it is irrelevant that Leadermar was merely passing on the rental costs to the government. Canaveral contends that we should have examined Gate's subcontract costs to determine if there was any justification beyond the cost of improvements-- which Canaveral urges should be amortized over the useful life of the facility-- for charging a higher rent during the first 3 years of the lease than for the last 2 years. Moreover, Canaveral argues that, since the solicitation required the use of improved facilities by all offerors, it is unfair to limit early recovery of facility improvement costs, and the consequential competitive advantage resulting therefrom, to only those offerors that lease their facilities from lessors able to provide both the facility and the required improvements.

We considered the above arguments and rejected them principally because our in camera review of Leadermar's proposal revealed no basis for finding Leadermar's proposal either materially unbalanced or so grossly front- loaded as to provide Leadermar with unauthorized contract financing tantamount to advance payments under the contract. In this regard, we specifically noted that Leadermar's pricing reflected the cost of work plus a constant profit through the term of the contract.

We also rejected the argument that our analysis should extend beyond Leadermar's costs to Gate's costs in order to determine if Gate would make an early recovery of its capital investment on the facility improvements, because we are unaware of any law, regulation or solicitation provision applicable to fixed-price contracting that requires a contracting agency to examine subcontractor costs in the manner Canaveral proposed. Examination of subcontractor costs might be appropriate in the context of resolving an allegation that, contrary to the small business set-aside provision of the RFP, the government in effect was contracting with Gate, a large concern, and not Leadermar the small business (i.e., Gate was the de facto contractor). However, our Office, generally, would not conduct such an examination since it is the role of the Small Business Administration (SBA) to determine the size status of proposed contractors. We noted in our decision that Canaveral had filed a size status protest with the SBA attempting to establish that Gate controlled Leadermar, and that the SBA had rejected Canaveral's protest concluding that the Leadermar-Gate lease was an arms length agreement, and that the firms were neither affiliates nor joint venturers. We understand that SBA later rejected Canaveral's appeal of that determination.

Canaveral next asserts that Leadermar's pricing structure violates 31 U.S.C. Sec. 3324 (1982), which generally prohibits contract payments in amounts greater than the value of the service already provided. Canaveral observes that over the 5-year term of the contract, the price of Leadermar's services average $2,400 per day, but in the first 3 years, Leadermar will charge the government $3,200 per day. The protester contends that the "value" of services equates to the average price of the services over the term of the contract and in this case should not exceed $2,500 per day (Canaveral's price).

We disagree. The value of an item or service varies according to market conditions. Here, the solicitation required the contractor to provide the required services at a customized major facility from day 1 of the contract. Gate, as owner of one of the few facilities having both the required geographic attributes and the capability of being upgraded within the specified time, was in a position to demand higher monthly rental payments of Leadermar, or any other offeror renting its facility, early in the lease to compensate it for the cost of the improvements. We note that Gate discussed leasing its facility to Canaveral before agreeing to lease the facility to Leadermar and that, despite Leadermar's initially higher rent, Leadermar still submitted the overall lower fixed price for the required layberth services. Therefore, we find no reason to alter our conclusion that Leadermar's pricing was not so grossly front-loaded as to provide the awardee with unauthorized advance payments.

Finally, Canaveral contends that we erred both in finding that the record supported the agency's conclusion that Leadermar's proposal was technically acceptable and in finding that the evaluation was consistent with the RFP's evaluation criteria. Canaveral contends that the record does not contain documentary evidence that Leadermar's proposal satisfied each of nine specific evaluation criteria. The nine pass/fail criteria included: (1) a port navigable 24-hours a day; (2) adequacy of the berthing facility physical and structural characteristics/improvements; (3) ability of ship to lie safely afloat at all times; (4) protection from the elements or hazards within the port; (5) ease of ingress and egress availability of maneuvering room; (6) security requirements guard service to limit access, fence, alarms, lighting, and communications); (7) road access to the facility; (8) ability to provide at-berth services electricity, water, telephone, steam, garbage collection, etc.; and (9) ability to provide Port services availability of pilot service, tug service, commercial bunkering, ship repair, oily waste disposal, public fire-fighting service.

Canaveral observes that there is extensive documentation concerning the second evaluation factor-- the physical and structural characteristics of the pier-- but the only agency documentation supporting Leadermar's technical acceptability in the eight other evaluation areas consists of a form with an "acceptable" block checked which apparently was created after receipt of Leadermar's second best and final offer. Canaveral acknowledges that the agency conducted a site visit of Leadermar's facility, but dismisses the site visit as lacking probative value because: (1) Canaveral disagrees with the manner in which the visit was conducted arguing that the agency should have been more systemic, used survey instruments, and documented the results; and (2) Leadermar's technical proposal was only amended after the site visit-- when it provided prior dredging permits and a hydrographic survey-- to address the majority of the evaluation factors water depth, turning basin, safe working area, hazards to the ships or berth width. In other words, the site visit could not have verified aspects of Leadermar's proposal since Leadermar's proposal initially did not address the physical characteristics of the proposed facility and there was nothing to verify until Leadermar furnished the prior dredging permits and hydrographic survey well after the site survey was completed.

Essentially, Canaveral objects to the lack of documentation supporting the agency analysis of Leadermar's technical acceptability and to the absence of a comparison of Leadermar-furnished documentation about the facility's physical characteristics the hydrographic survey to the actual facility during the site visit. We find neither objection persuasive.

Our prior decision noted that in reviewing protests concerning the evaluation of proposals, we do not reevaluate the proposals and make our own determinations about their respective merits since this is the responsibility of the contracting agency, which is most familiar with its needs and which must bear the burden of any difficulties resulting from a defective solicitation. Tiernay Turbines Inc., B-226185, June 2, 1987, 87-1 CPD Para. 563. Instead, we examine the record to determine whether the agency's judgment was reasonable and in accord with listed criteria and whether there were any violations of procurement statutes and regulations. See ORI, Inc., B-215775, Mar. 4, 1985, 85-1 CPD Para. 266.

We found the record sufficient to support the agency determination, because, with the exception of the second factor mentioned above, the criteria focused on existing aspects of the proposed site. Thus, once the site was identified, the agency could physically examine the site to determine whether the berthing facility meet its requirements, assuming the offeror kept its proposal promises to make the improvements evaluated under the second evaluation factor and performed any required dredging. The evaluated physical characteristics of the site-- such as location, exposure to wind, current, river bottom, exposure to tides, passing traffic, road access, availability of pilot, tug and public fire-fighting services-- were either there, or they were not there. The agency both conducted a site visit to confirm the physical layout vis-a-vis the drawings accompanying Leadermar's proposal, and subsequently required Leadermar to furnish a hydrographic survey and evidence that it could obtain required dredging approvals from the appropriate authorities. light of the pass/fail nature of the evaluation and the nature of what was being evaluated, we see no basis to require elaborate documentation to show that the agency actually examined the site and the proposal in each evaluation criterion. Furthermore, the protester has not shown that the Navy's conclusions regarding the technical acceptability of Leadermar's proposal and facility were incorrect. Consequently, we remain of the view that the agency had sufficient information to conclude that the proposed site was technically acceptable, that the record supports the conclusions reached, and that the evaluation was consistent with the criteria found in the solicitation.

Since Canaveral has not established that our decision rests upon any errors of fact or law, it is affirmed.