B-237412, Feb 13, 1990

B-237412: Feb 13, 1990

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DIGEST: Protest challenging cancellation of invitation for bids set aside for small disadvantaged businesses on ground that low bid exceeded fair market prices of the items being acquired by more than 10 percent is sustained where the contracting agency failed to consider pricing information contained in a government-issued catalog of unit prices which indicated that the fair market prices of the items were significantly higher than the agency estimated. The Army canceled the IFB based on its finding that none of the responsive bids were within 10 percent of the fair market price of the items being acquired. Challenging the Army's fair market price estimate on the grounds that the items required under the IFB are not identical to the items on which the Army based its estimate.

B-237412, Feb 13, 1990

DIGEST: Protest challenging cancellation of invitation for bids set aside for small disadvantaged businesses on ground that low bid exceeded fair market prices of the items being acquired by more than 10 percent is sustained where the contracting agency failed to consider pricing information contained in a government-issued catalog of unit prices which indicated that the fair market prices of the items were significantly higher than the agency estimated.

Attorneys

Logics, Inc.:

Logics, Inc., protests the cancellation of invitation for bids (IFB) No. DAAB07-89-B-K200, issued as a total small disadvantaged business (SDB) set -aside by the United States Army Communications-Electronics Command for circuit card assemblies and mechanical gages. The Army canceled the IFB based on its finding that none of the responsive bids were within 10 percent of the fair market price of the items being acquired, as required before an award can be made under a procurement set aside for SDBs. Logics protests the cancellation, challenging the Army's fair market price estimate on the grounds that the items required under the IFB are not identical to the items on which the Army based its estimate, and that the Army did not consider relevant pricing information on the specific items being acquired. /1/

We sustain the protest.

The Army issued the IFB on April 28, 1989 for mechanical gages and two circuit card assemblies. Section M-8 of the IFB stated:

"ONLY BIDS FROM SDB CONCERNS WILL BE EVALUATED. HOWEVER, IN NO EVENT MAY AWARD BE MADE TO AN SDB CONCERN AT A PRICE WHICH EXCEEDS FAIR MARKET PRICE AS DETERMINED UNDER FAR 19.806-2 BY MORE THAN TEN PERCENT 10%."

Five bids were received, and at bid opening on August 22, Logics was the apparent low responsive bidder. Logic's bid $135,567.65 was determined to be unreasonable, however, because it exceeded the Army's estimate by nearly 24 percent. The agency then canceled the IFB and withdrew the SDB set-aside in accordance with Department of Defense Federal Acquisition Regulation Supplement (DFARS) Sec. 219.506(a). By letter dated September 29, the Army informed Logics of the rejection of its bid and cancellation of the IFB.

The IFB sought bids on circuit card assemblies, national stock numbers (NSNs) 5999-01-123-9210 and 5999-01-266-6045, identified on the IFB as line items 0001 and 0003, respectively; option quantities for both items were listed as line items 0002 and 0004. /2/ The Army states that its estimate for line item 0001 was based on the price history of a different but similar NSN, since no recent procurement history was available for the present NSN. The Army further states that line item 0003 is actually composed of two separate circuit card assemblies, mounted on a support assembly as an indivdual circuit card. Since there is no procurement history for the required assemblies under a single NSN, the procurement history for the individual sub-circuit card assemblies was used to estimate the price of line item 0003. The Army then adjusted the prices using inflation indices, and included an allowance for additional tooling. The Army ultimately arrived at the following estimated unit prices: $600 for line item 0001, $3,750 for line item 0003.

Logics asserts that the Army's fair market price estimate was unreasonable and that the Army erred in relying on the price of items different from those required under the IFB, when other reliable pricing data was available from which to derive a more accurate estimate. Specifically, the protester cites the "Management List Consolidated" (ML- C), published by the Defense Logistics Services Center (DLSC), Defense Logistics Agency (DLA), which is a consolidated cumulative listing of NSNs, and related supply management data including source of supply, unit of issue, unit price, shelf life, etc. The protester alleges that since the circuit cards required by the IFB are listed on the ML-C, the Army unreasonably disregarded this information and therefore arrived at an erroneous estimate when it relied on the price of circuit cards different from those required under the IFB to form the basis of its estimate.

In its report to our Office in response to Logic's protest, the Army recognizes that the ML-C is a DLSC publication, but argues that it cannot determine whether the unit prices listed in the ML-C were developed under competitive procurement procedures; that it does not generally use the publication in arriving at its estimates; and that the contracting officer lacks any specific knowledge of the ML-C since it is not retained in the contracting activity's technical library. The Army further asserts that the ML-C is not a reliable indicator of fair market prices since it is an inter-governmental supply tool used by supplying agencies as a means of obtaining reimbursement from ordering agencies; that the prices on the ML- C often include adjustments for administrative overhead and handling fees; and that the ML-C unit prices do not reflect on what quantity they are based. The Army contends that since the circuit card assemblies required under the IFB were not a repeat purchase, and hence do not have a procurement history, its estimates were established in accordance with FAR Sec. 19.807(b), which provides that in estimating the current fair market price the contracting officer shall "consider commercial prices for similar products and services, available in-house estimates ... and data obtained from any other Government agency." We are not persuaded by the Army's argument.

Section 206 of the Federal Property and Administration Services Act of 1949, codified at 40 U.S.C. Sec. 487 (1986), authorizes the Administrator of General Services to establish and maintain a uniform Federal Catalog System (FCS) to identify and classify personal property under the control of federal agencies. Similarly, the Defense Cataloging and Standardization Act, codified at 10 U.S.C. Secs. 2451 et seq. (1988), authorizes the Secretary of Defense to develop a single supply catalog system for the Department of Defense (DOD). DOD components are required to procure only the items listed in the supply catalog system developed by the Secretary. 10 U.S.C. Sec. 2454(a). Among the objectives of the cataloging system is to increase vendor competition and to provide agencies with assistance and precise statistics for budgeting and financial accounting purposes. See 41 C.F.R. Secs. 101-30.102(a)(4) and (a)(8) (1988). Both laws require that the Administrator and the Secretary coordinate the cataloging activities to avoid unnecessary duplication; in fact, the Administrator delegated authority to the Secretary to develop and maintain the FCS. 41 C.F.R. Sec. 101-30.501.

Under the authority of 10 U.S.C. Sec. 2451, the Secretary issued DOD Directive 4130.2, March 9, 1981, establishing policies, objectives, and responsibilities governing the application, operation, and maintenance of the FCS. Under that directive, the Director of DLA is delegated the responsibility of managing and administering the operation of the FCS, including preparing and publishing FCS publications, such as the ML-C. According to DLSC, unit prices on the ML-C are derived from various sources, including fair market price estimates from the agency initially requesting that an item be cataloged and assigned an NSN. As the procurement history of a particular item develops, its unit price is adjusted on the ML-C to reflect current procurement costs. Additionally, regardless of procurement history, the ML-C data is updated monthly and unit prices adjusted for inflation annually.

As explained above, the Army based its estimate for line item 0001 on the price paid for a similar item under a 1986 contract, adjusted for inflation, and for line item 0003 on the prices paid for the two component parts making up the item under a 1987 contract, also adjusted for inflation. In our view, in calculating its estimate the Army should have been aware of and consulted the ML-C, a statutorily- authorized, government-wide catalog widely used by contracting agencies as a source of unit pricing for NSNs. The ML-C shows a unit price of $3,535 for line item 0001, and a unit price of $8,023.05 for line item 0003, compared to the Army's estimate of $600 and $3,750, respectively; Logic's bid prices ($975.47 and $5,227.28) were below the ML-C prices.

In accordance with DOD Directive 4130.2, one of the purposes of the ML-C is to provide management data required by agencies in managing, procuring, and stocking NSNs. The fact that unit prices for some NSNs may include handling fees or adjustments for overhead, and may not be based on competitive procurements, as the Army argues, does not release the Army from its obligation to investigate whether that is the case with regard to the specific NSNs required under the IFB. Similarly, the fact that the contracting officer was unfamiliar with the ML-C, and that the activity does not subscribe to the publication or normally refer to the ML-C in arriving at its fair market price estimates, does not mean that the ML-C, a widely used government catalog, may be disregarded as a source of information regarding reasonable prices for the NSNs at issue. At a minimum, the Army should have investigated the source of information on the ML-C before discounting it as inapplicable to this procurement.

Finally, in support of its determination, the Army points to one bid it received, which was nonresponsive for failure to provide for the minimum bid acceptance period, and which exceeded its estimate by less than 10 percent. However, the remaining bids, including the protester's, exceeded the Army's estimate by approximately 24 to over 150 percent. The record thus shows a great disparity between the Army's estimate and the prices listed on the ML-C, as well as substantial differences between the Army's estimate and each responsive bid submitted under the IFB. These wide variations raise questions as to the reliability of the information considered by the agency, and cast further doubt on the accuracy and reasonableness of its fair market price estimate.

In light of the information in the ML-C showing significantly higher unit prices for the exact items called for by the IFB, and the fact that all responsive bids received were significantly higher than the government estimate, we find that the Army's estimate of the fair market price was flawed. Accordingly, we recommend that the Army review its estimate, taking into consideration the unit prices listed in the ML-C. If, based on the new estimate, Logics's bid is within 10 percent of the fair market price, we recommend that the IFB be reinstated and award made to Logics, if it is otherwise eligible. We also find that Logics is entitled to the reasonable costs of filing and pursuing its protest, including attorneys' fees. 4 C.F.R. Sec. 21.6(d)(1) (1989). Logics should submit its claim for costs directly to the agency.

The protest is sustained.

/1/ Logics also protests the Army's failure to convert the IFB to a negotiated procurement instead of canceling, and its failure to refer Logics's bid to the Small Business Administration for review on the issue of price reasonableness. Since we sustain the protest on a different ground, we need not reach these issues.

/2/ The estimated price of the other item being procured, mechanical gages line item 0005, is not in dispute.