B-240327, Oct 31, 1990, 90-2 CPD ***

B-240327, Oct 31, 1990, 90-2 CPD ***

PROCUREMENT - Bid Protests - GAO procedures - Protest timeliness - 10 day rule DIGEST: 1. Protest of agency rejection of protester's response to agency's Commerce Business Daily notice of its intent to place a sole-source purchase order against a Federal Supply Schedule contract is timely where protester (1) responded to notice within required 30-day time limit, (2) filed an agency-level protest within 10 working days of receiving notice of its rejection as technically unacceptable, and (3) thereafter filed a protest at the General Accounting Office within 10 working days of its receipt of the denial of its agency-level protest. PROCUREMENT - Noncompetitive Negotiation - Contract awards - Sole sources - Justification - Procedural defects 2. Contracting agency has not justified the sole-source purchase of computer equipment and peripherals where: (1) it rejected as technically unacceptable the protester's offer of equivalent equipment, even though the protester submitted evidence that the offered equipment was completely compatible and the agency gives no specific reasons why the protester's equipment is not compatible; and (2) the agency stated that it would consider equivalent equipment upon expiration of the agency's underlying computer system warranty, which expired shortly after award.

Attorneys

Berkshire Computer Products:

Berkshire Computer Products protests the Department of the Air Force's order of Digital Equipment Corporation (DEC) equipment under DEC's General Services Administration, Federal Supply Schedule (FSS) contract No. GS00K- 90AGS-5726 for the Strategic Air Command's VAX 8820 computer system. /1/ Berkshire contends that the sole-source order is improper because other firms are capable of meeting the agency's needs. Specifically, Berkshire urges that the Air Force can obtain some of the equipment add-ons for its computer system at a lower cost by purchasing functionally identical, 100 percent compatible, non-DEC equipment.

We sustain the protest.

On April 26, 1990, the Air Force announced in the Commerce Business Daily (CBD) its intention to place a sole-source order for four categories of DEC add-on equipment (a server, server data channel cards, mass storage disk drives, and memory cards) and three categories of ancillary equipment (two types of cable and disk drive cartridges). The synopsis listed the equipment by DEC model number and contained three reasons for restricting the purchase to DEC equipment:

(1) agency wide compatibility restrictions for electronic warfare support systems prohibited the "substitution of similar to DEC or other brand name hardware,"

(2) "hardware must be serviceable under current maintenance contracts," and

(3) the excess cost of converting to non-DEC hardware and/or software.

Although the CBD announcement stated no award would be made except to DEC under its FSS contract, interested firms were also advised to supply firm pricing and descriptive literature showing their ability to meet the requirement in 30 days.

Five firms, including DEC and Berkshire, responded. The non-DEC responses included two firms proposing all seven items as either refurbished or new DEC equipment, while Berkshire and another firm proposed selected items of DEC-equivalent equipment. The Air Force rejected all responses, except DEC's, as technically unacceptable. Only Berkshire protested its rejection. /2/

Berkshire offered to provide three of the four major items with substantial savings off DEC's FSS price. /3/ Specifically, Berkshire offered:

Server data channel cards - Berkshire proposed 10 Emulex brand cards for $45,000 for use in lieu of the 10 DEC cards costing $96,775;

Mass storage disk drives - Berkshire proposed either (1) 4 Maximizer brand disk drives for $46,000 or (2) 4 LAGO Systems brand disk drives for $38,400 for use in lieu of 4 DEC disk drives costing $80,874; and

Memory cards - Berkshire proposed 6 Clearpoint brand cards for $96,000 for use in lieu of the 6 DEC cards costing $227,520.

Berkshire included descriptive literature describing the proposed equipment's technical compatibility with DEC's VAX computer system.

On June 8, 1990, the Air Force rejected Berkshire's response as technically unacceptable for the following reasons:

1. Introduction of non-DEC equipment may void the DEC's existing system warranty;

2. Non-DEC equipment may not be subject to diagnosis by the system's DEC proprietary diagnostic software;

3. Non-DEC equipment could result in communications conflicts with other non-DEC equipment which may crash the entire system; and

4. Total interchangeability of equipment, including parts, is necessary to enhance system reliability and reduce the number of spare parts needed to maintain the system.

Notwithstanding the above, the agency also stated that it was only temporarily prohibiting non-DEC equipment and observed that: (1) ordinarily it "would favorably consider DEC-equivalent hardware for this requirement; however, the terms of the current system warranty limit how additional items can be used"; and (2) "once the system warranty has expired, hardware and software purchases to upgrade the DEC/VAX 8820 computer system will be solicited open-market, and non-DEC items, as well as refurbished items, will be considered."

On June 13, Berkshire responded to the Air Force's June 8 letter. Berkshire advised the agency that the items it proposed were 100 percent hardware, software and diagnostically compatible with the DEC VAX system. Berkshire pointed out that two of the three items were DEC maintainable products, both having been assigned DEC field service numbers, while the third item could simply be swapped out and replaced with its DEC counterpart should it develop a fault. Berkshire argued that it was illegal for DEC to threaten to withhold warranty service just because the DEC customer had added "a more cost-effective, higher performance peripheral" to its DEC system. Berkshire further stated that its non-DEC equipment would not become incompatible with future hardware or software unless the DEC equipment also became incompatible since the offered equipment was functionally identical to its DEC counterpart and "designed to the same specifications that the DEC peripherals are designed to." Berkshire also advised the Air Force that: (1) as a DEC reseller it could sell the agency the fourth item, the server, for approximately $55,000 -- the DEC price is $56,237; and (2) that it would send the agency references from customers that were running non-DEC equipment on DEC maintained systems. /4/

On June 14, the Air Force advised Berkshire that it would evaluate Berkshire's letter and issue a competitive solicitation if DEC compatible/equivalent equipment could meet its requirements.

On June 19, 1990, DEC provided the Air Force with a list of four reasons "why it is critical that the add-on equipment purchased ... be entirely DEC manufactured and supported." The reasons were:

1. System Warranty-- only DEC add-ons are included in and covered by the overall system warranty, and the customer has to pay if system problems are caused by non-DEC add-ons;

2. Hardware Compatibility-- DEC's no-charge hardware upgrades for systems under warranty are not guaranteed to work with non-DEC add-ons;

3. Software Compatibility-- since all add-ons operate through DEC's server, new versions of its software may render non-DEC add-ons inoperable until hardware or microcode modifications are made; and

4. Hardware Maintenance-- DEC diagnostics will not detect faults in non- DEC add-ons because their error register mapping does not conform to DEC's error register mapping; consequently, DEC's error log will not record non- DEC faults and cannot provide automatic backup protection to suspect add- on equipment; and DEC stocks spare parts locally while non-DEC parts often have to be shipped in at customer expense.

On June 22, the Air Force finalized its written justification for use of other than competitive procedures, as required by the Competition in Contracting Act of 1984 (CICA), 10 U.S.C. Sec. 2304(f) (1988). The justification concluded that a sole-source award to DEC was justified under 10 U.S.C. Sec. 2304(c)(1), which authorizes use of other than competitive procedures when the items needed are available from only one responsible source or a limited number of such sources and no other type of product will satisfy the agency's needs.

The justification, like the CBD synopsis (which cited agency wide compatibility restrictions), focused first on an Air Force determination to standardize its Electronic Combat (EC) support systems on DEC hardware and software. The justification states that use of DEC's standard hardware/software architecture is necessary if the agency is to write software: (1) for use in different host aircraft on diverse missions, and (2) which is upwardly compatible to future DEC hardware and software upgrades. According to the justification, "even slight differences in system configuration or operation of a particular system component may result in incorrect operation of ... software." The justification also stated that equipment downtime-- a critical concern since the system had to be operational 24 hours a day, 365 days a year-- was minimized by using DEC equipment in conjunction with DEC around-the-clock maintenance because only DEC had systemwide diagnostic software, and DEC alone was responsible for troubleshooting the system. The justification also included a variation of the four reasons presented in DEC's June 19 letter. The justification noted that Berkshire's proposal was unacceptable "since use of non-DEC equipment may degrade system performance and result in less than 100% fidelity, and could compromise the system warranty."

On June 22, the agency advised Berkshire that its solution was not acceptable "at this time," essentially for the reasons advanced (and using much of the identical language contained) in DEC's June 19 letter. The agency reports that it did not consider Berkshire's two references-- who Berkshire states could attest to the fact that DEC service was not affected by use of non-DEC hardware in the otherwise DEC systems-- because the references used "business computer systems, and they cannot be compared equally with military, intelligence-- based systems." The June 22 rejection letter closed with the observation that:

"while the DEC/VAX 8820 system is under warranty, the Air Force must be very careful not to compromise the terms of that warranty. Once the warranty has expired, any hardware or software purchases for the system will consider original equipment manufacturer (OEM), DEC-compatible, and DEC-equivalent."

On June 26, a delivery order was placed under DEC's FSS contract for these items. On July 6, Berkshire protested to our Office, contending that an agency should not be allowed to restrict competition on the basis of a "'gut feeling' that the non-DEC equipment might not work at some future date."

As a preliminary matter, the Air Force argues that Berkshire's July 6 protest is untimely for two reasons and should not be considered. First, the Air Force argues that to the extent Berkshire's protest challenges the sole-source nature of the procurement it is untimely because the April 26 CBD notice gave Berkshire notice that the acquisition was sole-source to DEC and was limited to DEC equipment, and, therefore, the protest was required to be filed within 10 working days of the CBD notice (i.e., May 10). Second, the Air Force urges the same argument is applicable to its rejection of Berkshire's proposed solution since Berkshire's June 13 letter to the Air Force shows that Berkshire understood that the Air Force had rejected the use of non-DEC equipment. Consequently, Berkshire was required to protest that ground no later than June 27.

In our view, the protest was timely filed. The protest is against the Air Force's determination that DEC is the only responsible source capable of meeting the agency's needs. Although Berkshire did not agree with the Air Force's determination to that effect, which was spelled out in the April 26 CBD notice, the firm was not required to protest at that time. See Keco Indus., Inc., B-238301, May 21, 1990, 90-1 CPD Para. 490 (the filing of a timely expression of interest-- responding to CBD notice-- is generally a prerequisite to filing a protest challenging sole-source decision); see also Mine Safety Appliances Co., B-233052, Feb. 8, 1989, 89-1 CPD Para. 127. Berkshire properly responded to the CBD notice as an alternative source within 30 days as the notice required. Although the CBD notice stated that a sole-source award was contemplated and responses were not anticipated, it encouraged alternative sources to submit information or proposals identifying their interest and capability to respond to the requirement. /5/

Berkshire's June 13 letter responded to the contracting officer's June 8 letter which informed the firm that its approach-- using non-DEC equipment -- did not meet the agency's requirements. A letter does not have to explicitly state that it is intended as a protest for it to be so considered. A letter conveying an expression of dissatisfaction and a request for corrective action is a sufficient expression of an intent to protest. Reeves Bros. Inc. et al., B-212215.2, B-212215.3, May 2, 1984, 84-1 CPD Para. 491. We think it fair to characterize Berkshire's June 13 letter to the Air Force objecting to the Air Force's determination as an agency-level protest filed within 10 working days of its receipt of notice of June 8 rejection of its proposal, in that it challenged all the agency's conclusions concerning Berkshire's proposed equipment, and effectively requested that the agency delete the DEC-equipment-only restriction and consider Berkshire's proposed solution. /6/ Indeed, the Air Force's June 14 letter acknowledged that it would take corrective action if it found merit in Berkshire's June 13 letter. Consequently, the agency's June 22 letter effectively denied Berkshire's agency-level protest. On July 6, within 10 working days of its receipt of this letter, Berkshire timely protested to our Office. 4 C.F.R. Sec. 21.2(a)-(3) (1990). Berkshire's protest essentially challenges the Air Force's sole- source justification. Because the overriding mandate of CICA is for "full and open competition" in government procurements obtained through the use of competitive procedures, 10 U.S.C. Sec. 2304(a)(1)(A), this Office will closely scrutinize sole-source procurements under the exception to that mandate provided by 10 U.S.C. Sec. 2304(c)(1). WSI Corp., B-220025, Dec. 4, 1985, 85-2 CPD Para. 626. The propriety of the agency's decision to procure DEC equipment on a sole-source basis rests on whether or not it was reasonable to conclude that only one source was available. See Turbo Mechanical, Inc., B-231807, Sept. 29, 1988, 88-2 CPD Para. 299. The crux of the agency's determination to that effect was its belief that an Air Force-wide policy required it to use DEC's standard hardware/software architecture: (1) in order to preserve the agency's ability to write software for diverse applications; (2) to minimize equipment downtime by taking advantage of DEC maintenance services, parts availability, and system diagnostics; (3) possible difficulty in enforcing the DEC system warranty; and (4) possibility of undiagnosed DEC/non-DEC and non DEC/non- DEC equipment conflicts disrupting the entire system. /7/ We find that these reasons are not supported by the record and do not reasonably support a conclusion that DEC is the only reasonable source for this equipment.

It is undisputed that a substantial aftermarket exists for DEC computer system equipment and components. In other words, established and reputable non-DEC manufacturers are designing and fabricating equipment for use in replacing and enhancing DEC computer system components. On the other hand, it is true that the interface of hardware and software is critical, and substantial care must be exercised in upgrading computers to avoid unexpected hardware/software interactions and malfunctions. The record before us demonstrates that at least some manufacturers in the DEC aftermarket are designing equipment specifically as upgrade replacements for parts used in existing DEC systems-- including the parts being acquired here-- and that such equipment may even outperform its DEC counterparts. Consequently, without further support, the agency's concerns that the purchase of non-DEC equipment will degrade their ability to write compatible software or will otherwise disrupt the system are not well founded.

The agency's sole-source justification, like the CBD notice, was primarily based on reasons provided by DEC and does not discuss the unique feature of the DEC hardware in any detail, nor indicate whether or why they are necessary to meet the Air Force's minimum needs. Instead, the justification is directed to the agency concern that the equipment be maintainable by, and covered by warranty with, DEC, and consists of a detailed discussion of DEC diagnostic software and the DEC user support services.

In contrast, the Air Force states that it would consider equivalent equipment upon expiration of the agency's underlying computer system warranty. However, the record shows that the warranty expired on August 31, 1990. That is, a primary reason for the sole-source purchase disappeared 2 months after award. Moreover, the willingness to consider non-DEC equipment following the expiration of the DEC warranty casts doubt on the agency's other stated reasons for rejecting Berkshire as a responsible source. /8/

The balance of the agency's objections to the purchase of non-DEC equipment focuses on the Air Force's lack of confidence that any other equipment can perform as well as or be compatible with, DEC equipment. Not only is this distrust of non-DEC equipment belied by agency plans to compete this requirement upon expiration of the warranty, it is not supported by the record. Specifically, the agency has reported what it thinks will be the consequences of having to purchase other than DEC equipment, e.g., the DEC system's diagnostic software may not work with non-DEC equipment. There is nothing in the record addressing the specifics of why the protester's proposed equipment will not work with the DEC system, i.e., there is no explanation of what makes the specific equipment proposed unsuitable for use on the DEC system. Instead, the agency justifies its position with conclusionary statements to the effect that non-DEC equipment is unacceptable because it may degrade the system. In this regard, in evaluating Berkshire's proposal, there is no evidence that the agency actually evaluated the compatibility or acceptability of Berkshire's proposed equipment. Nor did the agency take into account Berkshire's references-- who Berkshire claimed could attest to the compatibility of non-DEC equipment in DEC systems. /9/

On the other hand, the protester, in its response to the CBD notice, asserted that it was offering 100 percent DEC system compatible equipment and supported its assertion with manufacturers' brochures making and documenting the same claim. In its protest, the protester has furnished evidence, not rebutted by the Air Force, /10/ that the non-DEC equipment meets the apparent Air Force requirement that it be compatible and "transparent." /11/ For example, if a malfunction occurs in "transparent" non-DEC equipment, the defective equipment sends the same error message that its DEC counterpart would send to the system so that the DEC diagnostics package is aware of the nature and extent of the non-DEC component's problem. /12/ We think this evidence puts into question the remainder of the Air Force's sole source justification. See Audio Intelligence Devices, 66 Comp.Gen.145 (1986), 86-2 CPD Para. 670 (agency sole-source justification is not reasonable where the agency does not adequately evaluate responses to the CBD announcement and does not demonstrate that only the proposed awardee can provide the sole-source product).

We recommend that the agency determine its minimum requirements concerning the equipment to be procured and clearly communicate those requirements to potential offerors in a new CBD synopsis or a competitive solicitation, /13/ and that the order from DEC's FSS contract be terminated if it is not the successful offeror. We find that Berkshire is also entitled to the reasonable costs of filing and pursuing the protest. 4 C.F.R. Sec. 21.6(d)(1).

We sustain the protest.

/1/ The computer system supports Electronic Combat (EC) systems which identify enemy radar and generate EC countermeasures.

The computer system allows the Air Force to reprogram its EC systems as it obtains new information concerning enemy radar, and as new countermeasures are developed.

/2/ The Air Force has suspended delivery pending the resolution of Berkshire's protest.

/3/ The fourth major item, the Hierarchical Storage Controller, HSC 70- AA, Intelligent I/O Server (server) is manufactured by DEC. Apparently, there are no third-party equivalents.

/4/ Berkshire supplied the Air Force with these references on June 22.

/5/ CBD footnote 22 stated that the purpose of the synopsis was to allow all interested persons to either identify their interest and capability to respond to the requirement, or to submit proposals. It assured responding firms that all proposals received within 30 days after the synopsis' date of publication would be considered for the purpose of determining whether to conduct a competitive procurement.

/6/ The Air Force and DEC also complained that Berkshire's protest did not furnish sufficient details. However, the Air Force was sufficiently apprised of Berkshire's bases by the June 13 letter, which Berkshire's protest to our Office incorporated.

/7/ We requested a copy of the policy directive referenced by the Air Force justification. See Program Management Directive for Electronic Warfare Integrated Programming (EWIP) Capability, November 16, 1989. find nothing in the directive that would restrict the use of the DEC- equivalent equipment.

/8/ For example, the Air Force stated preference for DEC maintenance, parts availability and systems diagnostics as support for the sole source award is undercut by the Air Force's intention to compete this requirement.

/9/ The agency reasoned that user experience on DEC computer systems running non-DEC hardware and business applications is irrelevant to assessing the impact of introducing non-DEC equipment to a DEC computer system which will run military applications. Absent documentary support for this conclusion, we are not persuaded that the impact of non-DEC equipment on system integrity is application dependent in this instance.

/10/ Following a bid protest conference at our Office, DEC submitted a list of specific technical reasons for questioning the compatibility of Berkshire's proposed equipment with DEC's equipment. For example, regarding the Emulex data channel card, DEC claimed incompatibility based on differences in: (1) the products' approaches to checking data integrity; (2) loading microcode updates; and (3) power consumption. Berkshire responded that the offered equipment provides: (1) different but superior methods of detecting and preventing data integrity problems, (2) different but equal methods of upgrading microcode, and (3) lower power consumption. DEC made similar claims about the Clearpoint brand memory cards to which Berkshire has responded. We are not persuaded that the agency, after a proper technical review, would necessarily agree with DEC's conclusions concerning the incompatibility of the proposed Berkshire equipment. In any event, DEC's compatibility arguments were presented after the agency awarded the purchase order to DEC, the agency has not advanced the arguments in its report to our Office, and nothing in the record shows that the agency relied on these reasons in awarding the purchase order on a sole source basis.

/11/ Equipment is "transparent" if it is designed to operate without either the system, or the system's users, being aware that non DEC equipment is part of the system because the equipment appears to both the system and the user as if it was the counterpart DEC equipment.

/12/Berkshire's equipment comes with a 1-year warranty which provides in part:

"Four (4) hour replacement of any Berkshire supplied equipment that you feel is not in proper working condition ... and a guarantee of compatibility. If the products Berkshire supplies you with ever become incompatible with future revisions of your hardware or software where the equivalent DEC product remains compatible, we will replace our product with the DEC equivalent free of charge.

"This guarantee is valid throughout the life of your system so long as the product is used for its intended purpose by the original purchaser."

/13/ The focus of the CBD notice was on the benefits of using DEC as a reliable sole-source instead of on specifying the aspects of DEC equipment that preclude a competitive solution. We think a CBD notice best realizes its intended purpose-- advising potential sources of what might prove to be an opportunity to compete-- when it clearly spells out unique technical and functional characteristics of the required equipment, since a CBD notice should include sufficient information to provide prospective offerors with an opportunity to respond in a meaningful way to the notice with possible alternative approaches. See generally Masstor Sys. Corp., 64 Comp.Gen. 118 (1984), 84-2 CPD Para. 598; Solbourne Computer, Inc., B-237759, Mar. 23, 1990, 90-1 CPD Para. 323.