Matter of: Custom Environmental Service, Inc. File: B-252538 Date: July 7, 1993

B-252538: Jul 7, 1993

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PROCUREMENT Sealed Bidding Unbalanced bids Materiality Responsiveness Protester's low bid was properly rejected as materially unbalanced where it contained mathematically unbalanced prices and the agency had a reasonable doubt. For which estimated quantities were listed. For 13 of the 19 definite-quantity line items there were corresponding line items among the requirements-contract line items covering identical services. Where the same service was also covered under a requirements-contract line item. Bidders were required to list unit prices for every item. The price for each line item was calculated by multiplying the offered unit price by the definite or estimated quantity for that line item.

Matter of: Custom Environmental Service, Inc. File: B-252538 Date: July 7, 1993

PROCUREMENT Sealed Bidding Unbalanced bids Materiality Responsiveness Protester's low bid was properly rejected as materially unbalanced where it contained mathematically unbalanced prices and the agency had a reasonable doubt, in light of the uncertainty associated with the solicitation estimates, that award on the basis of protester's bid would result in the lowest overall cost to the government.

Attorneys

DECISION Custom Environmental Service, Inc. protests the rejection of its bid under invitation for bids (IFB) No. 7911, issued by the Department of the Interior. Custom Environmental contends that the agency improperly rejected its bid as materially unbalanced.

We deny the protest.

The IFB, issued by the U.S. Geological Survey, Department of the Interior, contemplated the award of a contract for landscape maintenance services at a federal building in Virginia for a 12-month base period with 3 option years. For each contract period, the IFB contained 19 definite- quantity line items and 45 line items identified as requirements-contract items, for which estimated quantities were listed.

For 13 of the 19 definite-quantity line items there were corresponding line items among the requirements-contract line items covering identical services. The agency had informed offerors through an IFB amendment that the definite-quantity line items represented known requirements and that, where the same service was also covered under a requirements-contract line item, the latter represented possible additional needs, over and above the known requirement. As an example, the IFB amendment noted that, since the agency had a firm need for 15 grass cuttings, the definite-quantity portion of the IFB listed 15 cuttings. Because the agency anticipated an estimated need for 15 additional cuttings, that number appeared as the estimated quantity for the grass cutting line item in the requirements- contract portion of the IFB.

Bidders were required to list unit prices for every item, and the price for each line item was calculated by multiplying the offered unit price by the definite or estimated quantity for that line item, as appropriate. Bidders were informed that the government would evaluate bids by adding the total price for all options to the total price for the base requirement.

The IFB referenced the award clause set forth at Federal Acquisition Regulation (FAR) Sec. 52.214-10, which provides, in pertinent part, as follows:

"The Government may reject a bid as nonresponsive if the prices bid are materially unbalanced between line items or subline items. A bid is materially unbalanced when it is based on prices significantly less than cost for some work and prices which are significantly overstated in relation to cost for other work, and if there is a reasonable doubt that the bid will result in the lowest overall cost to the Government even though it may be the low evaluated bid, or if it is so unbalanced as to be tantamount to allowing an advance payment."

Ten firms submitted timely bids. After the adjustment of several bid prices for mistakes and the elimination of two bids for reasons not relevant to the protest, the overall evaluated bid prices were as follows:

1. Custom Environmental $558,908.00 2. Custom Lawn 701,282.00 3. Bid C 705,910.00 4. Bid D 790,714.50 5. Bid E 938,554.67 6. Bid F 947,366.00 7. Bid G 978,800.94 8. Bid H 990,229.00

While Custom Environmental's bid price appeared to be low by a significant margin, the contracting officer concluded that the bid was unbalanced. The contracting officer focused on the fact that Custom Environmental bid a price of zero dollars for 14 of the requirements- contract line items for the base period and all 3 option years. The contracting officer noted that, where identical services were to be performed under definite-quantity and requirements-contract line items, Custom Environmental had bid substantially higher prices for the definite- quantity line items. The most significant items, in terms of their dollar impact, were grass cuttings, mulch application, shrub and tree shearing, and the preparation of flower bed and planters.[1]

After analyzing the protester's pricing structure, the contracting officer determined that, while Custom Environmental "may be the lowest evaluated bidder based on the criteria in Section M (i.e., lowest price based on the sum of all line items), there is a reasonable doubt [on the part of the contracting officer] that the bid will result in the lowest overall cost to the Government." Accordingly, the contracting officer rejected Custom Environmental's bid as unbalanced and made award to the next low bidder, Custom Lawn.

Custom Environmental challenges the reasonableness of the rejection of its bid. It contends that its bid is mathematically and materially balanced.

An examination of bid unbalancing has two aspects. First, the bid must be evaluated mathematically to determine whether each item carries its share of the cost of the work plus overhead and profit, or whether the bid is based on nominal prices for some work and enhanced prices for other work. Unbalancing typically arises either between base period prices and option period prices, or, in a requirements-contract solicitation, between line items for different goods or services.

If a bid is found to be mathematically unbalanced, it must be evaluated to determine the cost impact of the price skewing. Where there is reasonable doubt that award to the bidder submitting the mathematically unbalanced bid would result in the lowest ultimate cost to the government or where the bid is so unbalanced as to be tantamount to an advance payment, the bid is materially unbalanced and may not be accepted. FAR Sec. 52.214-10; Westbrook Indus., Inc., 71 Comp.Gen. 139 (1992), 92-1 CPD Para. 30.

For unbalancing in requirements contracts, the accuracy of the solicitation estimates is critical, since the unbalanced bid will become less advantageous than it appears only if the government ultimately requires a greater quantity of the overpriced items and/or a lesser quantity of the underpriced ones.[2] Duramed Homecare, 71 Comp.Gen. 193 (1992), 92-1 CPD Para. 126. Where an agency has reason to believe that its actual needs may deviate significantly during performance from the solicitation estimates, it may reasonably view a mathematically unbalanced bid as not clearly representing the lowest cost to the government and therefore as materially unbalanced. Outer Limb, Inc., B-244227, Sept. 16, 1991, 91-2 CPD Para. 248.

Here, the contracting officer had a reasonable basis to find Custom Environmental's bid mathematically unbalanced. The zero-dollar bids for requirements-contract line items are indisputably below cost and nominal (or even less than nominal). Prices for a significant number of definite- quantity line items are clearly enhanced; Custom Environmental's prices for these items are substantially higher than the prices offered in all but the highest priced bids. Moreover, Custom Environmental has not disputed that the prices for those items are enhanced, and merely argues that its prices are "typically less than the average price stated." Enhanced prices, however, need not be uniformly present in order to establish mathematical unbalancing, and the fact that the protester's prices are "typically" lower than the average (which would include prices from the highest priced bids, at least one of which also appears to be unbalanced) does not call into question the reasonableness of the agency's finding Custom Environmental's bid mathematically unbalanced.

Concerning whether the bid is materially unbalanced, the key question is whether the IFB's estimated quantities for the requirements-contract line items are accurate.[3] Here, the agency states that the estimates were based on the best available information. The agency advises that most of the estimates were copied from the estimates used in a predecessor contract, where many of them proved reasonably accurate. Some of the earlier estimates were modified because the current IFB includes landscaping work in a physical area not included in the predecessor contract. In other instances, the unit of measurement changed from the number of times a task was performed to staff-hours, and the estimates in terms of staff-hours had to be approximated for purposes of the IFB. Finally, in some instances, the IFB includes line items for tasks not covered at all under the prior contract; in those cases, the estimates reflect the agency personnel's considered attempt to predict the expected usage.

Nonetheless, the agency advises that, with regard to all the estimates, there is a further element of uncertainty caused by the unpredictability of the weather. The amount of rain and the temperature and the occurrence of strong winds or severe storms will affect the number of times that certain tasks need to be performed. This anticipated impact is apparent from the language of the IFB's statement of work describing the performance of grass cuttings, for which Custom Environmental bid enhanced prices for the definite-quantity amount but zero-dollar prices for the requirements-contract amount. Thus, the IFB states that, "[d]uring periods of drought, the period between [grass] cuttings shall be extended to allow grass to attain a height of 2 1/2 inches (minimum) before cutting."

Against this background, while the IFB estimates are the best available predictions, weather conditions could dramatically affect the actual quantities ordered. For that reason, the agency contends that the contracting officer had reasonable doubt that award on the basis of Custom Environmental's mathematically unbalanced bid would result in the lowest ultimate cost to the government. In essence, it is not clear to what extent the agency would realize the apparent cost benefits resulting from the protester's low-cost and no-cost pricing for various requirements- contract line items.

The protester's response has two parts. First, as to the grass cuttings, Custom Environmental argues that the 30-cutting estimate (which is the sum of 15 cuttings each under the definite-quantity and the requirements- contract estimates) is "highly realistic" because the company does not recall a year in which there have been fewer than 30 grass cuttings.

Second, Custom Environmental argues that the estimates are not weather dependent. Thus, the protester argues that, if there is a drought, the contractor is required by the contract to water the grass, which will therefore continue growing and thus need cutting. Custom Environmental also contends that weather will have no impact on the frequency of three other tasks, mulch application, flower bed preparation, and shrub and tree shearing, where Custom Environmental's prices for the definite-quantity amounts appear enhanced, while the requirements-contract amounts appear underpriced.[4] The protester argues that the frequency of these tasks is unaffected by the weather.

Our review of the record leads us to conclude that the agency had a reasonable basis to doubt whether Custom Environmental's bid would ultimately prove to represent the lowest price. First, the method by which the estimates were derived raises some uncertainty about their accuracy. As noted above, the changes in the scope and means of measurement of the work under the IFB compelled the agency to develop estimated quantities which could be no more than approximations of future use.

Second, and more significantly, the estimates--even where they are as accurate as reasonably possible--contain elements of uncertainty due to the unpredictable impact of the weather. Particularly important in this regard, due to the protester's substantial unbalancing for this line item, are the grass cuttings. While the protester contends that the frequency of grass cuttings will not be affected by the weather, the IFB expressly contradicts this contention. In case of a drought--not an unknown occurrence in Virginia--the IFB explicitly directs the contractor to reduce the frequency of grass cuttings. The agency thus had a reasonable basis for concern that it might not order the entire 30 grass cuttings included in the IFB estimates.

The protester's logic regarding the other tasks that it claims are not weather dependent is unclear and, in fact, its arguments support the agency's position. Thus, Custom Environmental's position is that mulch is applied "but one time a year" and this "is simply not weather dependent." If the protester is correct, then the agency will be required to pay Custom Environmental's enhanced price for the one definite-quantity mulch application, and will never obtain the benefit of Custom Environmental's low price for the one requirements-contract mulch application, which the agency estimated would also be needed.

Similarly, the IFB states that flower beds and planters are to be prepared once in the spring and once in the fall (with this quantity of two exhausting the IFB's definite-quantity amount), but gives no indication when, if at all, the two additional, requirements-contract amount might be ordered. The protester argues vigorously that flower bed preparation will not need to be performed more than twice a year, thus guaranteeing that the agency will not benefit from Custom Environmental's zero-dollar prices for the requirements-contract flower bed preparation work.

Finally, Custom Environmental explains that it has held a contract similar to the one at issue here for 5 years, and that, in each instance, shrub and tree shearing needed to be performed precisely six times each year. The six shearings that the protester argues are the appropriate quantity, regardless of weather, correspond to the six shearings included in the definite-quantity portion of the IFB--as to which Custom Environmental's prices appear inflated. In order to gain from Custom Environmental's pricing scheme, the agency would have to order more than six shearings, because at that point it would shift to Custom Environmental's zero-dollar requirements-contract price. The protester, however, argues vehemently that neither weather nor any other variable will cause the agency to order more than six shearings.

As to the mulch applications, flower bed preparation, and shearings, the protester's own arguments establish the reasonableness of the agency's doubt that it would ever benefit from Custom Environmental's low requirements-contract prices for those services. In addition, as explained above, we find that the weather may cause the number of grass cuttings to be reduced below the estimates included in the IFB.

Because of these and the other uncertainties detailed above, the IFB estimates here, while apparently based on the best information available, share the uncertainty inherent in all estimates, and cannot be relied upon as an assurance that Custom Environmental's mathematically unbalanced bid will ultimately represent the low cost to the government. See Ocean Habitability, Inc., B-227304, Sept. 17, 1987, 87-2 CPD Para. 265. We therefore conclude that the agency had a reasonable basis for its doubt that Custom Environmental's mathematically unbalanced bid would result in the lowest cost to the government. Accordingly, the agency properly rejected that bid as materially unbalanced.

The protest is denied.

1. For example, for grass cuttings, Custom Environmental bid $2,500 per cutting for the first 15 cuttings, the definite-quantity amount, but zero dollars for the additional 15 cuttings identified in the requirements- contract portion of the IFB. No other firm bid more than $1,650 per grass cutting, and most bid considerably less; Custom Lawn bid $925 and $825 per cutting for the definite-quantity and requirements-contract portions, respectively.

2. Even where no reasonable doubt exists that a mathematically unbalanced bid represents the lowest overall cost to the government, there are certain limited situations where a grossly front-loaded bid may not be accepted because its acceptance would be tantamount to allowing an advance payment. FAR Sec. 52.214-10(e); see ACC Constr. Co., Inc., B-250688, Feb. 16, 1993, 93-1 CPD Para. 142. Because we find that the uncertainty present in the estimates here justifies the agency's conclusion that Custom's bid was materially unbalanced, we need not decide whether its structure also entailed an advance payment.

3. The likelihood that the options will be exercised is irrelevant here because Custom Environmental's prices for the option periods are identical to those bid for the base period. That is, the mathematical unbalancing is solely between the definite-quantity line items and the requirements- contract line item, not between the base and option periods.

4. As noted above, the line items for those three tasks, together with grass cuttings, are the source of most of the mathematical unbalancing in Custom Environmental's bid.