B-244287.5, B-244287.6, B-244287.7, Nov 29, 1991

B-244287.5,B-244287.7,B-244287.6: Nov 29, 1991

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An agency properly may cancel a solicitation no matter when the information precipitating the cancellation first surfaces or should have been known. 2. Cancellation of solicitation after submission of proposals and selection of intended awardee is reasonable. Protesters challenging source selection therefore are not entitled to protest costs under section 21.6(e) of General Accounting Office Bid Protest Regulations. Where record clearly establishes a material reduction in the agency's requirements of as much as 60 percent from the level-of-effort set forth in the solicitation and does not demonstrate that cancellation was corrective action taken in response to the protests. It did not cancel the solicitation in February 1991 because it was uncertain of the congressional response to its proposal.

B-244287.5, B-244287.6, B-244287.7, Nov 29, 1991

DIGEST: 1. Agency delay in canceling request for proposals after proposing to Congress a reduction in program did not render cancellation unreasonable where based upon a material reduction in the agency's requirements of as much as 60 percent from the level-of-effort set forth in the solicitation; an agency properly may cancel a solicitation no matter when the information precipitating the cancellation first surfaces or should have been known. 2. Cancellation of solicitation after submission of proposals and selection of intended awardee is reasonable, and protesters challenging source selection therefore are not entitled to protest costs under section 21.6(e) of General Accounting Office Bid Protest Regulations, where record clearly establishes a material reduction in the agency's requirements of as much as 60 percent from the level-of-effort set forth in the solicitation and does not demonstrate that cancellation was corrective action taken in response to the protests.

PAI Corporation; Viking Systems International; CER Corporation-- Protests and Requests for Declaration of Entitlement to Protest Costs: PAI Corporation, Viking Systems International and CER Corporation protest the cancellation of request for proposals (RFP) No. DE-RP01 90NP00041, issued by the Department of Energy (DOE) for quality assurance support services. The protesters contend that DOE lacked a reasonable basis to cancel the solicitation; they dispute the agency's claim that a change in its requirements necessitated cancellation. Viking and CER also request that we declare them entitled to protest costs.

We deny the protests and the requests.

The solicitation, issued on August 14, 1990, requested proposals for a cost-plus-fixed-fee contract to provide quality assurance support services in support of DOE's New Production Reactors Program for the design and construction "of up to three new production reactors" for the production of tritium, a critical component of nuclear weapons. The solicitation specified total estimated direct productive labor hours (plus or minus 10 percent), and the estimated labor hours for 8 labor categories, over the 3 base years and 7 option years of the contemplated contract.

As amended, the solicitation established an October 15 closing date for receipt of initial proposals. After evaluating the proposals received in response to the solicitation, DOE established a competitive range, conducted discussions, and requested the submission of best and final offers by January 30, 1991. On May 20, DOE selected PAI for negotiations leading to award. CER, Viking, and a third offeror thereupon filed protests with our Office against the proposed award to PAI. On July 10, however, DOE canceled the solicitation based upon a significant reduction in its requirements and a determination to perform the remaining work in- house. On July 11, we dismissed the protests as academic in view of the cancellation.

The protests here center around DOE's rationale for canceling the RFP. In this regard, DOE reports that until early 1991, it planned to design and construct two reactors for the production of tritium, including a heavy water reactor in South Carolina and a modular high temperature gas- cooled reactor in Idaho, and, as a contingency, to develop a tritium production capability at a partially completed light water reactor in Washington. On February 4, however, the President submitted to Congress the proposed fiscal year 1992 budget. This budget, as subsequently explained to Congress in more detail by DOE, called for development and construction of only one reactor technology at a single site, with the final selection among possible alternative designs to be made in December 1991. DOE explains that, notwithstanding the proposed program reduction, it did not cancel the solicitation in February 1991 because it was uncertain of the congressional response to its proposal. According to the July 10 finding and determination supporting cancellation, however, DOE concluded that, as a result of congressional action in June 1991, there existed congressional support for limiting funding for the New Production Reactor Program. DOE forecast in the July finding and determination a 60 percent reduction in required quality assurance services from the level-of -effort specified in the solicitation as a result of reducing the New Production Reactors Program to a single reactor technology at a single site. In addition, DOE concluded that the reduction in the overall reactor program would reduce the required effort by government employees, thereby allowing a realignment of in house resources. Since an overall increase in government staffing for the program was also expected, DOE concluded that the reduced quality assurance services requirement could best be satisfied by using in house government employees and that therefore the solicitation should be canceled.

The protesters maintain that the cancellation was unreasonable. PAI questions whether a reduction of the program to one reactor would result in a 60 percent decrease in the need for quality assurance services and argues that the unspecified lesser reduction in level-of effort which it maintains is likely could have been implemented under the contract it was scheduled to receive. PAI and the other protesters also question the legitimacy of the rationale for the cancellation, noting that the proposed program reduction had been announced in the February 1991 budget submission, months before the cancellation, and, indeed, likely was under consideration for some time before that. Finally, Viking and CER claim that, in view of this delay, the cancellation actually constituted corrective action in response to their protests against the selection of PAI, entitling them to recover the costs of filing and pursuing their protests under our Bid Protest Regulations, 56 Fed. Reg. 3759 (1991) (to be codified at 4 C.F.R. Sec. 21.6(e)).

In a negotiated procurement, the contracting officer has broad authority to decide whether to cancel the solicitation; there need be only a reasonable basis for the cancellation. Cantu Servs., Inc., B-219998.9; B-233697, Mar. 27, 1989, 89-1 CPD Para. 306. As a general rule, we do not review agency decisions to cancel procurements and to perform work in-house, since these decisions are matters of executive branch policy. See Marann Inventories, Inc.-- Recon., B-237651.4, July 20, 1990, 90-2 CPD Para. 54. Where, however, the protester argues that the agency's rationale is a pretext-- that the agency's actual motivation was to avoid awarding it a contract or otherwise to avoid an unfavorable protest decision-- we will examine the reasonableness of the agency's justification. Id.

We find that the cancellation here was reasonable. The record supports the agency's explanation that there will be a reduction in the program from two or three reactors to an estimated one new reactor. Although PAI disputes DOE's estimate that the construction of only one new reactor will result in a 60 percent reduction in the required quality assurance services, there is nothing in the record that clearly establishes that the agency's estimate is incorrect. Moreover, while PAI questions the agency's estimated impact on the level of effort, PAI does not deny that a reduction of some magnitude will occur. On its face, we think it is sufficiently clear that the proposed program reduction to a single reactor is significant, and reasonably can be expected to have an equally significant impact on the level of effort required for quality assurance services at the reactors. Cancellation based on this changed requirement therefore was proper. Dynalectron Corp., B-216201, May 10, 1985, 85-1 CPD Para. 525 (cancellation is appropriate where the agency finds that its needs are no longer accurately reflected by the RFP, such as where there is a significant reduction in the anticipated workload).

PAI's suggestion that the agency could have awarded PAI a contract under the RFP and subsequently reduced the required level of effort is without merit. It is improper to award a contract with the intent to materially alter the contract terms after award. See Source AV, Inc., B-241155, Jan. 25, 1991, 91-1 CPD Para. 75 (contracting officer properly canceled a solicitation, and could not have made award with the intent to reduce the scope of work, where the contemplated reduction totaled approximately 33 percent; the reduction was tantamount to a cardinal change outside the general scope of the contract for which the competition was held); Zwick Energy Research Org., Inc., B-237520.3, Jan. 25, 1991, 91-1 CPD Para. 72; Holk Dev., Inc., B-236765.2, Jan. 18, 1990, 90-1 CPD Para. 65.

As for the delay in canceling the solicitation after the submission of the budget in February, DOE's stated desire to await congressional reaction to the proposed program reduction does not appear unreasonable on its face. While the agency's subsequent selection of PAI appears inconsistent with this explanation, DOE was entitled subsequently to change its decision. Holk Dev., Inc., supra (agency's initial determination not to include asbestos work in solicitation for alternation of computer facility does not preclude cancellation of invitation for bids after opening to include the work); see Independent Gas Producers Corp., B-229487, Mar. 2, 1988, 88-1 CPD Para. 217 (initial decision not to evaluate transportation costs does not preclude cancellation of invitation for bids after opening to provide for evaluation of those costs). agency properly may cancel a solicitation no matter when the information precipitating the cancellation first surfaces or should have been known, even if the solicitation is not canceled until after proposals are submitted and protesters have incurred costs in pursuing the award, Source AV, Inc., supra; see Zwick Energy Research Org., Inc., supra; Holk Dev., Inc., supra, or until after a protest has been filed. See CV Assocs.-- Recon., B-243460.2, Aug. 20, 1991, 91-2 CPD Para. 171.

With respect to Viking's and CER's requests for a declaration of entitlement to costs, section 21.6(e) of our Regulations provides that if the contracting agency takes corrective action in response to a protest, we may declare the protester to be entitled to recover the reasonable costs of filing and pursuing the protest. This provision was intended to allow the award of costs where we find that the agency unduly delayed taking corrective action in the face of a clearly meritorious protest. Oklahoma Indian Corp.-- Claim for Costs, B-243785.2, June 10, 1991, 70 Comp.Gen. ***, 91-1 CPD Para. 558.

The record clearly establishes the existence of a material reduction in DOE's requirements of as much as 60 percent from that set forth in the solicitation, and we have found that this reduction in the estimated level of effort constituted a reasonable basis for canceling the solicitation. Thus, cancellation here did not constitute corrective action to remedy a protested violation of statute or regulation. In these circumstances, we find that the protesters have failed to establish an entitlement to protest costs.

The protests and the requests are denied.

Honorable Rick Santorum

Member, United States House of Representatives

This is in response to your letter dated August 9, 1991, concerning the protest of Viking Systems International against the Department of Energy's cancellation of request for proposals No. DE-RP01-90NP00041.

Enclosed is a copy of our decision of today.

Enclosure

Honorable Arlen Spector

United States Senate

This is in response to your letter dated August 21, 1991, concerning the protest of Viking Systems International against the Department of Energy's cancellation of request for proposals No. DE-RP01-90NP00041.

Enclosed is a copy of our decision of today.

Enclosure

Honorable Jim Sasser

United States Senate

This is in response to your letter dated September 19, 1991, concerning the protest of Viking Systems International against the Department of Energy's cancellation of request for proposals No. DE RP01-90NP00041.

Enclosed is a copy of our decision of today.

Enclosure

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Joel R. Feidelman, Esq., and James M. Weitzel, Jr., Esq., Fried, Frank, Harris, Shriver & Jacobson, for PAI Corporation; Marcia G. Madsen, Esq., and Brian W. Craver, Esq., Morgan, Lewis & Bockius, for Viking Systems International; and Alan Dickson, Esq., Jones, Day, Reavis & Pogue, for CER Corporation, the protesters.

Paul A. Gervas, Esq., Department of Energy, for the agency.

David Ashen, Esq., and John M. Melody, Esq., Office of the General Counsel, GAO, participated in the preparation of the decision.