B-242650, B-242650.2, B-242650.3, May 20, 1991, 70 Comp.Gen. 497

B-242650,B-242650.3,B-242650.2: May 20, 1991

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

PROCUREMENT - Noncompetitive Negotiation - Contract awards - Sole sources - Justification - Procedural defects Protest is sustained where agency's justification for proposed sole source award under the authority of 10 U.S.C. Sec. 2304(c-)(1) (1988) is not based on evidence that establishes the reasonableness of its determination that only one known source can meet the government's needs. (Valero). /1/ The contract is to cover the transportation and delivery of natural gas to six Texas Air Force bases and one Naval Air Station. The protesters contend that sufficient competition exists to permit the procurement to be competed among small and small-disadvantaged businesses (SDBs) and that the agency is attempting to circumvent the requirement for full and open competition.

B-242650, B-242650.2, B-242650.3, May 20, 1991, 70 Comp.Gen. 497

PROCUREMENT - Noncompetitive Negotiation - Contract awards - Sole sources - Justification - Procedural defects Protest is sustained where agency's justification for proposed sole source award under the authority of 10 U.S.C. Sec. 2304(c-)(1) (1988) is not based on evidence that establishes the reasonableness of its determination that only one known source can meet the government's needs.

Attorneys

Gulf Gas Utilities Co.; Krystal Gas Marketing Company; Commercial Energies, Inc.:

Gulf Gas Utilities Co. (GGU), Krystal Gas Marketing Company, and Commercial Energies, Inc. protest the issuance on October 31, 1990, of request for proposals (RFP) No. F41689-91-R-0005, by Randolph Air Force Base, Texas, for the sole-source award of an indefinite-term, fixed price (with an economic price adjustment) requirements contract for public utility service to Valero Transmission Company, L.P. (Valero). /1/ The contract is to cover the transportation and delivery of natural gas to six Texas Air Force bases and one Naval Air Station; the installation (where necessary), operation, and maintenance of meters for measuring the amounts of delivered gas and of the gas distribution system; and backup and administrative services. The protesters contend that sufficient competition exists to permit the procurement to be competed among small and small-disadvantaged businesses (SDBs) and that the agency is attempting to circumvent the requirement for full and open competition.

We sustain the protests.

Initially, the agency decided to compete the procurement. In November 1989, the contracting officer requested a draft statement of work for a competitive spot market natural gas acquisition to replace its natural gas contract with Valero Industrial Gas, L.P., an affiliate of Valero. Under that contract, Valero's affiliate provided spot market gas for 70 percent of the agency's needs and Valero, in addition to transportation, provided regulated gas for the remaining 30 percent of the agency's needs.

After determining that City Public Service (CPS), the San Antonio public utility owning the San Antonio pipelines needed for the delivery of gas to the three bases located in that city, which represented 75 percent of the total needs, "would consider another transportation agreement with other suppliers so long as it did not adversely impact on other ratepayers," the contracting officer determined to proceed with the competitive acquisition. The contracting officer also determined that the procurement would not be restricted to small businesses or SDBs because no reasonable expectation existed that at least two such businesses would submit reasonably priced offers. The proposed procurement was synopsized in the Commerce Business Daily (CBD) on March 20, 1990. The synopsis required an offeror to provide with its proposal "firm transportation agreements signed with Valero and CPS."
(In addition to owning a pipeline which
connected to the CPS San Antonio pipelines, Valero owns the pipelines
which deliver the natural gas to the four non-San Antonio military bases
also covered by the proposed procurement.)
Copies of the solicitation
were requested by 22 firms.

On April 5, the Air Force utilities advisor requested that the proposed
competitive solicitation be canceled and that the procurement be awarded
to Valero on a sole-source basis.
It was his view that the agency
requirements for uninterrupted gas flow could only be met by a natural gas
utility such as Valero.
He also requested that a market survey and
economic analysis for the procurement be conducted by a private firm.
June 14, a meeting between the utility advisor, the private firm hired to
conduct the survey and analysis, and agency procurement personnel was held
to discuss the reasoning behind a sole source award for public utility
service rather than a competitive procurement of spot market natural gas
with transportation agreements to ensure pipeline delivery.
A "formal
market survey" was conducted on June 21, by the private firm to determine
what companies could provide the agency's needs.
Only Valero and agency
personnel were contacted during this survey.
The survey firm concluded
based on these discussions that Valero was the "only responsible source
for natural gas utility service" which could guarantee an uninter-rupted
"secure, long-term access to spot market natural gas supplies" which would
meet the agency's needs.
The survey was based on the assumption that no
means existed for the delivery of alternative supplier gas.

On August 6, a Justification and Approval (J&A) was issued in accordance
with Federal Acquisition Regulation (FAR) Sec. 6.303-2 to provide the
justification for purchasing, pursuant to 10 U.S.C. Sec. 2304(c)(1)
(1988), public utility service for the seven bases from Valero as the only
existing responsible source that could provide uninterrupted gas supplies
and energy security/reliability.
The J&A met all procedural
requirements.
The award was to be for an indefinite term since no change
in the competitive situation was anticipated in the foreseeable future.

The J&A stated that it was necessary to award to a contractor providing
public utility service since a public utility service contractor provides
service, regardless of changes in the customer's usage requirements or the
general nature of the natural gas market, until the service responsibility
is formally abandoned.
The J&A also stated that Valero-- as a public
utility-- was the only company that could provide the necessary supplies
and services because Valero's contract with CPS limited to Valero or its
affiliates the use of the leased CPS pipeline to the three bases located
in San Antonio.
Although the J&A acknowledged that CPS had stated that it
would consider a transportation agreement with an alternate supplier, no
such agreement or the rates it would incorporate existed.
The record also
shows that the Air Force utility advisor did not want to lose the very low
rates that CPS was charging Valero for transportation over its pipelines.

Regarding the remaining 25 percent of the agency's gas needs (the other
four bases), the J&A stated that award of a sole-source contract to Valero
was necessary to ensure reliable gas flow.
The options of purchasing all
or part of the agency's gas needs from an alternate supplier were
determined unacceptable.
First, the agency would not have Valero's
utility service obligation in the case of nonperformance by the alternate
supplier.
Second, alternate suppliers realistically could not compete
with Valero or its affiliate because they would have to transport their
gas over Valero pipelines and the terms and conditions that Valero would
require would make competition impossible.
Third, the agency did not have
the metering equipment and personnel necessary to support alternate
suppliers using Valero's pipelines.

The J&A also stated that a market survey had been conducted and also that
knowledgeable experts had concluded that Valero represented the only
"responsible" source for natural gas Tutility service and for secure, long
-term access to spot market gas supplies.
Further, an analysis of natural
gas prices based, in part, on prices for Valero's gas under previous
contracts projected significant savings from this new contract.
Finally,
the J&A reported that no sources expressed an interest in supplying total
service as required in the proposed sole source acquisition from Valero.

The three protesters question the validity of the agency's sole source
decision.
They note that a sufficient number of firms expressed an
interest in the March 20 synopsis.
GGU claims that it is one of three
small business natural gas utility service companies that could perform
this contract.
/2/The protesters state that they and others could
contract with a utility company, other than Valero, such as CPS, to lease
pipeline usage, contract to have a parallel pipeline constructed to the
bases, or the Air Force could obtain the necessary transportation
agreements itself-- the latter approach apparently is used by the Defense
Logistics Agency.
GGU notes that a recent state agency agreement with
Valero to transport gas does not contain the onerous requirements Valero
allegedly seeks to impose here on alternate suppliers.
Further, the
protesters argue that the survey of Valero, but none of its competitors,
biased the facts in favor of a sole-source award to Valero.
Additionally,
in the protesters' view, the J&A creates a misleading impression in
stating that no sources expressed an interest in supplying the total
service involved in the proposed sole source award since none of Valero's
competitors were ever surveyed regarding these needs.

While the overriding mandate of the Competition in Contracting Act of
1984 (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), CICA does permit noncompetitive acquisitions in specified
circumstances such as when the supplies needed are available from only one
responsible source.
10 U.S.C. Sec. 2304(c)(1).
Elbit Computers, Ltd.,
B-239038, July 11, 1990, 90-2 CPD Para. 26.
Where the agency has
substantially complied with the procedural requirements of CICA, 10 U.S.C.
Sec. 2304(f), we will not object to a sole-source award based on a
determination that only one known source can meet the government's needs
unless it is shown that there is no reasonable basis for the award.
Astron, B-236922.2, May 2, 1990, 90-1 CPD Para. 441; Turbo Mechanical,
Inc., B-231807, Sept. 29, 1988, 88-2 CPD Para. 299.
To justify a sole-
source award, an agency must reasonably establish that there is only one
possible contractor that can do the work.
See Daniel H Wagner, Assoc.,
Inc., 65 Comp.Gen. 305, 86-1 CPD Para. 166.

In order to justify a sole-source in this case, the agency was required
to ascertain whether other qualified sources capable of satisfying the
government's requirements exist.
This is commonly accomplished by a
market survey.
FAR Sec. 6.303-1, 6.303-2(a)(8); See, e.g., Union Natural
Gas Co., 66 Comp.Gen. 116 (1986), 86-2 CPD Para. 648.
We find that
support for the decision to issue a sole-source contract is lacking.
The
record fails to establish that only Valero and its affiliates can meet the
agency's needs.

First, the survey by the private contractor relied on in the J&A was
incomplete because it was based only on discussions with the sole source
contractor and the Air Force.
The contractor did not independently
determine if a sole-source was justified, but adopted the results of
meetings with the Air Force and Valero.
The contractor concluded that
"due to the lack of transportation access for non-Valero suppliers and the
unacceptable energy security risk ... of terminating Valero's utility
service contract, the Air Force decided to pursue the sole-source contract
option."
The report then stated the contractor's purpose was to prepare a
price analysis of procurement options.
The survey thus did not address
the capabilities of the firms which responded to the original synopsis or
CPS's willingness to enter into transportation agreements with natural gas
suppliers.

Second, the Air Force determination is not reasonably based because it
omitted a major consideration-- CPS's willingness to enter into
transportation agreements with other natural gas suppliers to supply the
three San Antonio Bases.
No mention is made in the survey or the J&A as
to why a company could not transport its gas through the CPS system.
The
record shows that CPS already has a contract with GSA to furnish gas to
federal facilities in the San Antonio area and submitted a transportation
agreement to permit gas suppliers to use its pipelines in a proposal it
submitted to the agency in 1988.
The record also contains correspondence
showing CPS's continued willingness to enter transportation agreements and
to consider proposals received from suppliers to the Air Force which
apparently led to the initial decision to compete the requirement.
The
agency responds that CPS's statement that it would be willing to transport
gas for an alternate supplier is meaningless since no agreement exists.
In our view, the fact that no alternate supplier has provided the agency
with a transportation agreement with CPS does not make the possibility of
such an agreement "meaningless."
We see no reason why an alternate
supplier should be required to enter into such an agreement in the absence
of a competitive procurement requiring one.
Also, while the agency states
that it could not provide the gas metering needed to regulate alternate
suppliers, the record shows that for 75 percent of the agency's needs the
metering is already being provided by CPS, not Valero.

As regards the four non-CPS area military installations, the record does
not show that consideration was given to the possibility that an alternate
supplier could construct pipelines and the necessary metering for these
installations or lease facilities from Valero if Valero's sole-source is
withdrawn.
In sum, the record before us fails to show that other sources
beside Valero could not perform the necessary services.
We think a more
comprehensive survey of alternate sources would have established whether
GGU or other sources could possibly meet the agency needs.
The price
analysis conducted by the survey firm, which allegedly shows significant
savings resulting from a sole-source award to Valero, does not, standing
alone, serve as a reasonable basis for limiting competition.
Lea
Chemicals, Inc., 67 Comp.Gen. 149 (1987), 87-2 CPD Para. 622.
Accordingly, we recommend that, unless the agency is able to reasonably
justify a sole-source procurement based on a market survey that shows only
Valero can meet its needs, the Air Force should conduct a competitive
acquisition.
/3/ We also find that each of the protesters is entitled to
the costs of pursuing its protest, including attorneys' fees.
4 C.F.R.
Sec. 21.6(d)(1).

The protests are sustained.

The Honorable Donald B. Rice
The Secretary of the Air Force:

Enclosed is a copy of our decision of today sustaining the protests of
Gulf Gas Utilities Co., Krystal Gas Marketing Company, and Commercial
Energies, Inc. under request for proposals No. F1689-91-R 0005, issued by
Randolph Air Force Base for the sole-source award of a requirements
contract for public utility service to Valero Transmission Company, L.P.
For the reasons stated, we concluded that, unless the agency is able to
reasonably justify a sole-source procurement based on a market survey that
shows only Valero can meet its needs, the agency should conduct a
competitive procurement.
In addition, we find that each protester is
entitled to recover the costs of pursuing its protest, including
attorneys' fees.

We direct your attention to the Competition in Contracting Act of 1984,
31 U.S.C. Sec. 3554(e)(1) (1988), which requires that the head of the
procuring activity responsible for the procurement report to our Office if
the agency has not fully implemented our recommendation within 60 days of
the receipt of our decision.
In any event, please advise our Office of
the action taken on this procurement.

/1/ The Federal Property and Administrative Services Act, 40 U.S.C. Sec. 481(a) (1988), grants the General Services Administration (GSA) the authority to manage procure, and supply public utility services to the government. The Act also provides that the Department of Defense (DOD) may procure its own utility services where it is in the best interest of national security. Pursuant to this authority, GSA and DOD agreed that DOD would procure its own utility services.

/2/ GGU has submitted a letter from the Railroad Commission of Texas stating that GGU "has been classified as a gas utility." The agency argues that GGU has possibly "mischaracterized" its status and that it is a gas production utility rather than a transmission utility as is Valero. GGU states that it currently is providing public utility services to the Federal Bureau of Prisons.

/3/ The agency has authorized award to Valero based on urgent and compelling circumstances.