B-232562.2, Jan 30, 1989, 68 Comp.Gen. 206

B-232562.2, Jan 30, 1989, 68 Comp.Gen. 206

Procurement - Competitive Negotiation - Contract awards - Shipment schedules - Modification - Propriety Contracting agency may not award a contract with the intention of significantly modifying it after award. Where record shows agency relaxed delivery terms contemporaneous with contract award, and protester could have offered significantly better terms if it had known that delivery schedule would be modified, so that competition would have been materially different from that originally obtained, award was improper and another round of best and final offers is recommended.

Falcon Carriers, Inc.:

Falcon Carriers, Inc. protests the award of contracts to Texaco Refining and Marketing, Inc. and OMI Bulk Transport, Inc. under request for proposals (RFP) No. N00033-88-R-1703, issued by the Military Sealift Command (MSC). The protester alleges that the agency materially and improperly relaxed a mandatory delivery requirement after best and final offers (BAFOs) were received. The protester also alleges that the cost evaluation performed by the agency was flawed.

We sustain the protest.

On June 24, 1988, the agency issued the RFP for the charter of one or more vessels for worldwide trading, transportation and storage of Department of Defense petroleum cargoes in bulk. The RFP required delivery of the vessel or vessels between August 1 and November 30. The RFP was originally intended to replace tonnage of the charter for the Falcon Leader (owned by Falcon) which was expiring in August 1988. The RFP permitted multiple awards. The RFP requested potential offerors to furnish firm-fixed prices per day with fuel and port charges reimbursable at cost by the government for chartering of vessels for a basic period of 17 months, with two 17-month option periods.

The RFP also provided for evaluation of factors affecting overall cost to the government, including the cost of hiring the vessel, cargo capacity, speed and fuel consumption. The RFP further stated that award would be made to the responsible offerors whose offers would be in the best interest of the government, "price, technical acceptability and other factors considered."

Offerors submitted initial proposals on July 25, 1988. The agency held discussions with all offerors and on August 19 requested submission of BAFOs by August 30. In its BAFO, Falcon proposed two ships, the Falcon Leader and Falcon Champion. The Falcon Leader was available to meet the required delivery period. The Falcon Champion was under charter to MSC and was not available until January 1989. However, the RFP also provided that offerors could propose vessels currently under charter with MSC. Falcon offered the unencumbered Falcon Leader as a separate, one-ship offer and proposed alternatively the Falcon Leader and Falcon Champion on a two-ship, all-or-none basis. /1/ Three other offerors, including Texaco and OMI, submitted BAFOs. The agency then began to evaluate BAFOs.

The record shows that the agency evaluated vessels in two modes: a storage mode, that is, stationed at sea and on call for contingencies, and a point-to-point transportation mode, using one hypothetical 30-day trip from Bahrain to Subic Bay. The agency evaluated the storage mode costs on the basis of a cost per ton for an 8-1/2 month period and evaluated the transportation mode on a cost per ton basis for a 1 month trip. The agency first evaluated total storage cost per ton for the entire 8-1/2 month period. This figure was then added to the evaluated cost per ton for the transportation mode which represented only 1 month of transportation services. These two figures were then added together and divided by two to obtain an average cost. Thus, the agency only evaluated performance for 9-1/2 months of the 17 month basic contract period. /2/

On September 6, the agency orally notified Texaco of its selection for award to replace the Falcon Leader, the vessel charter which was shortly to expire. This was confirmed by telex on September 7. Furthermore, the agency decided to award a second contract to OMI to replace the Falcon Champion, the charter which was due to expire in mid January 1989, based on a determination that prices offered under this solicitation would probably be lower than might be offered under a subsequent solicitation. On September 6, the agency orally notified OMI of this second award and, contemporaneously, the agency and OMI conducted oral discussions during which the agency and OMI agreed to a relaxed delivery schedule. The agency, by telex dated September 7, "confirmed" its acceptance of OMI's charter based on the previous day's conversations. While the original RFP required delivery of the vessel between August 1 and November 30, the agency awarded this second contract to OMI on a basis that postponed the required delivery to January 15 - February 15, 1989, a 4 month unilateral extension of the RFP's delivery schedule. This protest followed.

Initially, the protester argues that the agency's relaxation of the delivery terms for OMI was improper because the agency did not afford other offerors the same opportunity to submit an offer on the basis of the revised delivery terms. Falcon states that Falcon Champion's charter expired in January and would have been available at that time. Falcon points out that it was not informed of this change in delivery requirements or afforded an opportunity to propose its vessel on this relaxed delivery schedule. Falcon specifically contends that the relaxation of the delivery schedule constituted improper post-BAFO discussions with only one offeror concerning a material RFP requirement. Falcon argues that, despite MSC's oral notification of award to OMI on September 6, the contract was awarded by the September 7 telex, and thus the oral discussions conducted on September 6, in which the parties agreed to extend the delivery dates, constituted improper post-BAFO discussions. /3/

MSC argues that, under maritime law, the contract was awarded on September 6 based solely on the oral notification to OMI by the contracting officer. Thus, according to MSC, any further discussions by the contracting officer with OMI after oral notification of award constituted modification to an existing contract and were not post-BAFO discussions.

We find that, even assuming that the agency awarded the OMI contract orally on September 6 and then immediately modified the delivery terms, the agency's action was improper. If the integrity of the competitive bidding system is to be maintained, agencies may not award contracts with the intention of significantly modifying them after award; rather, an award must be based on the requirements stated in the solicitation. Ingersoll-Rand, B-225996, May 5, 1987, 87-1 CPD Para. 474; American Television Systems, B-220087.3, June 19, 1986, 86-1 CPD Para. 562. If we find that the competition for the contract as modified would be materially different from the competition originally obtained, then we generally will conclude that the award was improper and recommend resolicitation under revised specifications. Ingersoll-Rand, B-225996, supra.

Here, the record shows that prior to contract award to OMI, the agency planned a second award to replace the charter expiring in January. The record further shows that the change in delivery terms to reflect the agency's need for a replacement charter in January was raised with OMI contemporaneously with the oral notification of award on September 6. This change in delivery terms was confirmed in the telex notice of award of September 7. Thus, even if award was made on September 6, as the agency asserts, we are persuaded by the award and immediate modification of the delivery terms that the award was made with the intention of modifying the delivery terms. In this regard, delivery generally is considered to be a material solicitation term. See Industrial Lift Truck Co. of New Jersey, Inc.; Doering Equipment, Inc., B-230821, B-230821.2, July 18, 1988, 67 Comp.Gen. *** 88-2 CPD Para. 61.

In our view, the relaxation of the delivery schedule thus constitutes a material change which should have been communicated to all offerors, and required another round of BAFOs. The record shows that Falcon, for legitimate business reasons, did not propose the Falcon Champion on a one- ship basis because, as the agency knew, the ship was under charter until January 1989. Falcon alleges, and the agency does not dispute, that the firm would have proposed this vessel on a one-ship basis had the agency advised Falcon of the relaxed delivery schedule which coincided with the expiration of the existing Falcon Champion charter in January. Falcon also asserts that it could have offered several additional vessels under the revised delivery terms which were unavailable under the original delivery schedule. Further, we find, as explained below, that had Falcon been allowed to propose the Falcon Champion on a one-ship basis, such an offer potentially could have been in line for award of the second contract. We therefore find prejudice to Falcon because the competition for the contract as modified could have been materially different than the competition originally obtained. See Ingersoll-Rand, B-225996, supra.

Specifically, based on this record, we conclude that Falcon's potential offer of the Falcon Champion, on a one-ship basis, properly evaluated, could have been in line for the second award as the low offeror. We first note, as the protester argues, that the agency's initial evaluation of proposals (giving 8-1/2 times the weight to storage costs than transportation costs) was improper because the record shows that such an evaluation bears no reasonable relationship to the agency's minimum needs, and that such a weighting of transportation and storage modes distorts the accurate relationship between these two costs for evaluation purposes. Specifically, the record shows that under a recent solicitation, storage and transportation services were weighted equally based on the agency's belief that during the charter period there was an essentially equal chance that the vessel would be in either mode. In fact, the agency, based on its experience, reports that its best estimate is that the storage mode will account for one-half of the charter term. /4/ The agency does not explain why it departed from the equal weighting of the two services for evaluation purposes which was previously used and which apparently properly reflects its minimum needs. Further, the agency does not contend that less than equal weighting of these two services reflects anticipated performance, but merely states that the disproportionately unequal weighting was "assumed" solely for evaluation purposes. Based on this record, we think that equal weight of 8-1/2 months for each mode reasonably reflects the agency's minimum needs during contract performance, and as such should have been used for evaluation purposes.

While the agency concedes that the original evaluation scheme was "inherently imprecise," the agency nevertheless argues that Falcon was not prejudiced by this faulty evaluation, since Falcon's two offers would not have been low in any event even if equal weight were properly given to the storage and transportation modes. In this regard, the agency has submitted a cost analysis indicating that Falcon's two offers would not be low even if equal weight were given each mode of service.

As stated above, Falcon offered the Falcon Leader on a one-ship basis and the Falcon Leader and Falcon Champion on a two-ship, all-or none basis. Based on the agency's cost evaluation figures (with equal weight given to the storage and transportation modes), as provided to us, the record clearly shows that Falcon's two offers as submitted would not be in line for award. However, the agency has failed to show, and we cannot find with any assurance, that Falcon, had it been given an opportunity to propose Falcon Champion on a one-ship, unencumbered basis under the relaxed delivery schedule, would clearly not have been low under one of the two contract awards. See Greenleaf Distribution Services, Inc., B-221335, Apr. 30, 1986, 86-1 CPD Para. 422.

Specifically, Falcon's two-ship evaluated price is lower than the evaluated price for the charter awarded to Texaco. While this two-ship price may or may not be an average price for the two ships, it reasonably suggests that Falcon was capable of matching the two-ship price for at least one vessel. This is especially so since the record indicates that Falcon's potential price for the Falcon Champion at the later January date could have been reduced because of additional earnings and credits of $400,000 - $800,000 received for the ship under Falcon's existing charter which only expired at that time. Had Falcon's offer of the Falcon Champion closely approached or been below the two-ship offer, Falcon would have been in line for the second contract ahead of Texaco. /5/ We also cannot discount the possibility, as Falcon alleges, that the firm could have restructured its proposal to offer additional vessels or to lower its price for general business reasons. See Greenleaf Distribution Services, Inc., B-221335, supra. Because of the agency's improper actions, we are left to speculate how much lower Falcon's price would have been for the Falcon Champion on an unencumbered, one-ship basis. We therefore conclude that the record establishes the possibility of competitive prejudice to Falcon because of the agency's actions. Thus, we sustain the protest on this ground. See E.C. Campbell, Inc., B-222197, June 19, 1986, 86-1 CPD Para. 565. Regarding potential remedies, we initially note that the agency made a written determination that it was in the best interests of the government to permit performance of Texaco's charter.

The agency did suspend performance of OMI's charter. In such circumstances, where a best interest finding is made to continue performance, our Office is empowered to make its recommendation for corrective action without regard to any cost or disruption from terminating, recompeting or reawarding the contract. 4 C.F.R. Sec. 21.6(c) (1988).

Because of the agency's faulty evaluation and improper modification of the delivery terms, we think the entire procurement was seriously flawed. Accordingly, by separate letter to the Commander, Military Sealift Command, we are recommending that another round of BAFOs be solicited from all offerors to insure that all offerors are competing on a common basis. The contracting officer should reevaluate the new proposed costs based on equal weighting of storage and transportation modes. We further recommend that the contract of Texaco or OMI, or both, be terminated for the convenience of the government if either or both are not one of the lowest evaluated offerors after evaluation. Further, we award Falcon the cost of pursuing the protest, including attorneys' fees. 4 C.F.R. Sec. 21.6(d)(1).

/1/ The protester states that it did not propose the Falcon Champion on a one-ship basis because the vessel was already under charter with the agency until January 1989, at rates much higher than reasonably could be proposed under this solicitation. According to the protester, if Falcon had proposed this vessel, the firm would have lost the additional revenue that was guaranteed the firm under its existing charter.

/2/ For illustration purposes, if the cost per cargo ton per month was $20, this figure was, in effect, multiplied by 8-1/2 to arrive at a total cost of $170. If the transportation cost for 1 month was $30, this cost was added to the $170 per ton figure for a total of $200 per ton and divided by two for an average cost of $100 per ton. Thus, the storage mode costs were weighted 8-1/2 times the transportation mode costs.

/3/ The protester also argues that since the RFP stated that award would be made based on price, technical acceptability and "other factors," the agency was obligated to consider other technical factors such as the unique capabilities of the Falcon vessels in its award decision. Our Office has, however, consistently held that where "other factors" are not set forth in the solicitation, such a provision clearly provides for award to the low, technically acceptable offeror. Essex Electro Engineers, B-229491, Feb. 29, 1988, 88-1 CPD Para. 215.

/4/ The agency states that the cost of each vessel in the storage mode "was estimated using a period of 258.4 days (or one-half of the time charter term) which is consistent with MSC's use of its time chartered fleet." This rough estimate was supported by an affidavit from the Director, Transportation Directorate, which has operational responsibility for the cargo fleet.

/5/ We note that the agency modified the OMI contract but could have modified the Texaco contract since the vessels are fungible. Therefore, we find that it is not relevant which contract was in fact modified.

/6/ We not that evaluated prices have not been revealed and that reopening of the solicitation for another round of BAFOs would not result in an auction situation.