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entitled 'Appropriateness of Indian Health Service's Request for 
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GAO-02-343R: 

United States General Accounting Office: 
Washington, DC 20548: 

January 23, 2002: 

The Honorable Max Baucus: 
United States Senate: 

Re: Appropriateness of Indian Health Service's Request for Proposals: 

Dear Senator Baucus: 

You requested that we review the appropriateness of a termination of a 
1997 Indian Health Services request for proposals[Footnote 1] to 
provide computed tomographic scanning (CT Scan) services for the 
Blackfeet and Crow Service Units in Montana. Specifically, you were 
concerned about the allegations that Indian Health Services negotiated 
in bad faith with a Native American, women-owned, small business. 

We could find no indication that IHS negotiated in bad faith. GAO's 
Office of Special Investigations had previously looked into the case 
in December 1998 (Control Number 40212). GAO determined that the case 
was not within the scope of ongoing work and referred the case to the 
Department of Health and Human Services, Office of Inspector General 
(1111S/OIG). In June 1999, the HHS/OIG issued a report concluding that 
the allegations were unwarranted. A copy of the HHS/OIG report is 
enclosed. 

Specifically, the HHS/OIG found that Indian Health Services committed 
$840,000 to acquire computed tomographic scanning services for the 
service units to avoid having to transport patients offsite to receive 
services at a cost of $850.00 per scan. However, Indian Health 
Services' requirements changed. The Blackfeet Service Unit was to 
undergo major remodeling within 2 years, and the Crow Service Unit did 
not have the space or construction funds to accommodate the proposed 
scanning services. Upon receiving this information, the contracting 
officer reassessed Indian Health Services' needs and canceled the 
request for proposals. In a negotiated procurement, a contracting 
officer can cancel a request for proposals at any time if the 
contracting officer has established a reasonable basis for doing so. 

As agreed with your staff, we will not be pursuing this issue further 
and consider your request closed. If you have any questions regarding 
this letter, please contact me on (202) 512-4125 or Hilary Sullivan on 
(214) 777-5652. 

Sincerely yours, 

Signed by: 

David E. Cooper: 
Director: 
Acquisition and Sourcing Management: 

Enclosure: 

[End of letter] 

Enclosure: 

Department Of Health & Human Services: 
Public Health Service: 
Indian Health Service: 
Rockville MD, 20857: 

June 1, 1999: 

To: John E. Hartwig: 
Deputy Inspector General for Investigations: 

From: Deputy Director: 
Office of Management Support: 

Subject: Office of Inspector Hotline Complaint Referral #G40212: 

I am submitting a report of findings and actions taken in response to 
Hotline Case #G40212, a complaint alleging contractor/grantee issues 
in the Billings Area. 

The Billings Area IHS has reviewed the allegations and submitted their 
findings. I am attaching the Billings Area's response of March 19, 
1999. 

Based on the attached finding, I consider the allegations to be 
unwarranted and resolved. I am recommending that OIG Hotline Case 
Number G40212 be closed. If you have any questions, please contact Mr. 
William Tibbitts, Program Integrity and Ethics Staff, on (301) 443-
4137. 

Signed by: 

Phyllis Eddy: 

[End of letter] 

Department Of Health & Human Services: 
Public Health Service: 
Indian Health Service: 
Billings, Montana 59103: 
	
Refer to: AAD/OAS: 

March 19, 1999: 

To: Deputy Director: 
Office of Management Support: 

From: Director, Billings Area: 

Subject: Office of Inspector General Hotline complaint Referral: 

In response to your memorandum dated February 18, 1999, I am attaching 
reports from our Contracting Office and Personnel Office addressing 
each issue separately. I have reviewed and approve the findings in 
both reports. 

Names and titles of the persons conducting the inquiries, and the 
source of information, for each complaint are listed below: 

Control Number H129957: 

Office of Special Counsel conducted initial investigation and Ms. Kim
Nicholson, Employee Relations Officer, reviewed files for the purpose 
of responding to this inquiry. 

Control Number G40212: 

Mr. Jerry Black, Contracting Officer; Rita Langager, Contract 
Specialist, reviewed files, and interviewed Project Officer and 
Project Specialist. 

Mr. Anthony Fisher, Area Pharmacist, Project Officer; Mr. David Means, 
Health System Specialist, Project Specialist. 

If you have any questions, please do not hesitate to contact Mr. 
Garfield Little Light, Associate Area Director, Office of 
Administrative Support, at (406) 247-7102. 

Signed by: 

Duane L. Jeanotte: 

Attachments: 

OIG Hotline Complaint: 

Control Number: G40212: 

These findings are provided in response to the Office of Management 
Support's memorandum of February 18, 1999. The findings address the 
allegations made by Integrating Technology and Standards, 
Incorporated, (ITS) relating to the Request for Proposal (RFP)-244-97-
0018-JLB. 

This response addresses ITS' concern regarding the Indian Health 
Service (IHS) policy and procurement procedures relating to Native 
American, women-owned, small businesses. The Executive Order 12432 
requires all federal agencies that have substantial procurement or 
grant making authority to develop minority business plans and 
establish goals to afford minority and disadvantaged businesses the 
utmost opportunity to participate in the business sector of the 
nation's economy. One of the programs utilized to implement this 
Executive Order is the Small Business Administration (SBA) 8(a) 
program. Section 8(a) of the Small Business Act (15 U.S.C. 637(a)) 
authorizes the SBA to enter into contracts with government agencies 
and to arrange for the performance of such contracts by letting 
subcontracts to socially and economically disadvantaged small business 
concerns. To comply with Executive Order 12432 as well as enforce the 
policy of the Buy Indian Act, the Division of Acquisition and Grants 
Management requests that IHS procurement offices establish goals for 
award to Native American 8(a) firms. The policies implemented within 
the agency as well as regulatory and statutory requirements do not 
negate contracting with Native American, women-owned, small businesses 
as alleged by ITS, but in fact, reinforces it. Through contracting 
opportunities, pursuant to the Buy Indian and Small Business Acts, 
these firms are encouraged to do business with the IHS. 

In reference to ITS' request, "...please review IHS Fund Management 
and Fund Management of set-aside dollars," the following is provided. 
The INS committed $840,000.00 for the subject acquisition. Upon 
reaching an agreement of all aspects of the proposal, the IHS 
anticipated the award of a fixed-price contract for a base year with 
four renewal option years. The purpose for soliciting the CT Scanning 
services was to deter from the present manner in which the services 
are being acquired. The existing procedures involve the transporting 
of patients to either Great Falls or Billings to receive services at a 
cost of $850.00 per scan. Nevertheless, as a result of the significant 
changes in the Government's requirements, as indicated below, this 
course of action must be delayed. 

This shall address ITS' allegation that the IHS negotiated the RFP in 
bad faith. The record shows that among other things, the Blackfeet 
Service Unit will be undergoing a major remodeling project within the 
next two years. Although the Blackfeet Service Unit believes a 
computed tomography (CT) scanner would improve patient care, to 
install one at the hospital at this time would not be feasible. To 
construct a room as needed would be redundant and detrimental to the 
remodeling construction budget. 

Furthermore, the Crow Service Unit indicated that it has neither the 
construction funds nor the space available for the proposed CT 
Scanning Services. After the review of the operational support for the 
proposed CT Sytek Scanner, the Area Facilities Construction 
Coordinator reported that the equipment exceeded the specifications 
maximum requirement of 200 square feet. The review also concluded that 
the input voltage requirement of 35 kva (peak), 208 volts, 3-phase, 
also exceeded the specified amount of 2 kW (peak), 115 volt, singe 
phase. The Area Facilities Construction Coordinator indicated that the 
scanner would not operate within the environmental conditions of the 
specifications (60F-104F and 30-85% relative humidity). The 
equipment proposed required a temperature range of 68F-82F and a 
constant relative humidity of 70%. If space were available, to install 
the equipment would require the IHS to purchase a dedicated electrical 
distribution line as well as a stand-alone heating, ventilating, and 
air conditioning system. 

Upon the Contracting Office receiving this information, it was very 
clear that the IHS' requirements had changed significantly. The 
Contracting Officer reassessed the IHS' needs and properly determined 
that regardless of whether ITS provided equipment pursuant to the RFP 
specifications the IHS would be unable to award a contract. In a 
negotiated procurement, the Contracting Officer has broad authority to 
decide whether to cancel a solicitation. To do so the Contracting 
Officer need only establish a reasonable basis. This permits an agency 
to cancel a solicitation no matter when the information precipitating 
the cancellation arises, even if it is not until a proposal is 
submitted and the offeror has incurred costs in pursuing the award. To 
cancel a solicitation after extensive discussions is not improper or 
indicative of bad faith. Particularly when the discussions result in a 
determination that the RFP does not provide consideration of all 
factors of cost to the Government or when inadequate specifications 
are cited in the RFP, as in the case of the subject solicitation. 

The IHS acknowledges ITS' concerns for patient care. As our Native 
American population grows, our health facilities in the Billings Area 
are rapidly outgrowing their current square footage. Increased space 
requirements are a constant concern at the IHS Service Units. In a 
continued effort to enhance the health care of our Indian people, 
accomplishing facility improvements is a priority in the Billings Area. 

While ITS disagrees with the IHS' decision to cancel the solicitation, 
there is no indication that applicable regulations were violated or 
that the IHS acted in bad faith. 

Enclosed for your information are the background and chronology of 
events that occurred during the acquisition process. This 
documentation is provided to substantiate the position of the IHS. 

Based on the aforementioned findings, the allegations made by ITS do 
not warrant corrective action. 

Background: 

In the middle of March 1997, a demonstration was conducted at the 
Blackfeet Service Unit. The purpose of this demonstration was to 
provide computed tomographic (CT) scanning services. Diagnostic 
Medical Systems (DMS) of Fargo, North Dakota, provided the 
demonstration, "which was approved by Indian Health Service 
Headquarters of Rockville, Maryland," (copy of the March 20 Glacier 
Reporter attached). This demonstration and subsequent quote served as 
a basis for the conception of the acquisition process. The quote from 
DMS was $355.00 per scan. Since this quote was unsolicited but clearly 
did not meet the requirements of Part 15 of the Federal Acquisition 
Regulation pertaining to an unsolicited proposal, it was treated as 
market survey information and a basis for the Government estimate. 
Prior to the acquisition process, the. Billings Area Contracting 
Office was unaware of the demonstration in March of 1997. It did not 
realize the demonstration had taken place until ITS faxed a copy of 
the Glacier Reporter article to our office in March of 1998. 

Chronology of events: 

August 18, 1997  The Contracting Office received a letter dated 
August 14, 1997, from the Small Business Administration (SBA) 
requesting assistance in identifying procurement opportunities for a 
firm known as ITS. The firm had been certified by the SBA as an 
eligible socially and economically disadvantaged concern for 
participation in the 8(a) program pursuant to Section 8(a) of the 
Small Business Act (15 U.S.C. 637(a)). 

October 1997  Within a matter of months, the Contracting Office 
received a program request to solicit computed tomographic (CT) 
scanning services for the Blackfeet and Crow Service Units of Montana. 
The request was handled in a manner conducive to an urgent and 
compelling type of situation. The rationale for this determination was 
the present manner in which the services were being acquired as well 
as the cost. The existing procedures involved transporting the 
patients to either Great Falls or Billings Montana at a cost of 
$850.00 per scan. 

October 8, 1997  An offer letter was sent to the SBA for set aside 
under the authority of the 8(a) program to a certified Buy-Indian firm 
known as ITS. 

November 3, 1998  Mr. Jerry Black met with ITS and the project 
officer (PO) to discuss the scope of work (SOW) and needs of the 
Government. At this time, the PO had not yet completed the Government 
SOW. The meeting was held at the request of the prospective 
Contractor, who was anxious to get started. 

Same time period  An interview was conducted by a local television 
station with ITS in which ITS spoke of the contract it was receiving 
from IHS. 

November 5, 1997  The Contracting Office received a draft proposal 
from ITS. The draft was submitted for the purpose of clarifying the 
format. 

November 12, 1997  The Contracting Office received a proposal from 
ITS for services with costs in excess of $1500 per scan. 

December 11, 1997  The Contract Specialist and the PO met with ITS to 
discuss the proposal and clarify the requirements and specifications. 
At this time, the PO had still not refined the SOW. The contractor 
offered to help the project officer refine the SOW to include points 
overlooked on the initial SOW, primarily concerning issues of the 
maintenance and delivery schedule. The other key points were power and 
space restrictions. 

December 15, 1997  The Contracting Office received a new proposal 
from ITS. The price was still at $1250.00 per scan. The project was 
delayed due to the holidays. No action was taken until after the first 
of the year. 

January  The Contracting Office realized that this acquisition was 
more complex than originally anticipated and determined that the 
acquisition should not be pursued as urgent and compelling. Due to the 
number of parties involved, ITS was told that all correspondence must 
be in writing with regard to this project. The Contracting Office 
started to revise the SOW and RFP. The RFP was issued on February 23, 
1998, and was not categorized as urgent or compelling to alleviate any 
future mistakes in planning. 

April 7, 1998  The Contracting Office received the new proposal. 

April 17, 1998  The Contracting Office issued a Standard Form (SF) 
26, Contract/Award to ITS for the purpose of requesting a Best and 
Final Offer (BAFO) and to incorporate minor changes to the SOW.
April 22, 1998  The Contracting Office received a BAFO from ITS. The 
price continued to be a substantial issue. A conference call was held 
with ITS. A price was agreed upon at $425.00 per scan. 

April 23, 1998  ITS resubmitted its BAFO to reflect the price agreed 
to but upon review was discovered to contain an error. 

April 24, 1998 - ITS resubmitted its new pricing page. 

April 29, 1998  The BAFO was referred to the PO for review. The 
technical evaluation concluded that the proposal included a response 
to many items that merely stated that ITS would "comply with the 
specifications." 

May 27, 1998  The technical evaluation report requested that the 
Contracting Office obtain specific equipment specifications from ITS 
to insure compliance. 

June 4, 1998  The Contracting Office issued a letter to ITS 
requesting that specific information be provided for the proposed 
equipment. 

July 21, 1998  Upon receipt, the technical evaluation concluded that 
deficiencies were cited in relation to space and power. These problems 
were then looked at with respect to costs that would have to be borne 
by the Government (see Determination and Finding to cancel). In 
addition to the costs to be absorbed by the Government not originally 
anticipated were the problems with the remodeling in Browning. 

October 16, 1998  The solicitation was cancelled. 

[End of enclosure] 

Footnote: 

[1] RFP-244-97-0018-JLB. 

[End of section]