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Matter of: Parmatic Filter Corporation File: B-285288.3; B-285288.4 Date: March 30, 2001

B-285288.3,B-285288.4 Mar 30, 2001
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Highlights

Agency reasonably determined in evaluating the offerors' past performance that there was a significant difference in risk between the awardee. Which was rated excellent. Which was rated marginal. Agency reasonably determined that the awardee's quality plan was superior to the protester's. 3. Even crediting the protester's assertion that its price advantage would have been 15 percent rather than the 12 percent stated in the award selection document if the changed requirements had been considered. Where there is no indication that the award selection would have been different. Which was found to represent a serious risk that the government could not assume. CLIN 0001 was for M48A1 gas particulate filters while the other CLINs were for other types of filters or canisters.

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Matter of: Parmatic Filter Corporation File: B-285288.3; B-285288.4 Date: March 30, 2001

DIGEST

Attorneys

DECISION

Parmatic Filter Corporation protests an award to Hunter Manufacturing, Inc. under request for proposals (RFP) No. DAAE20-00-R-0015, issued by the Department of the Army, Tank-automotive and Armaments Command (TACOM), Rock Island, Illinois, for gas particulate filters.

We deny the protest.

The RFP included three contract line item numbers (CLIN) and contemplated the award of one or more contracts. CLIN 0001 was for M48A1 gas particulate filters while the other CLINs were for other types of filters or canisters. On April 19, 2000, TACOM awarded one contract to Hunter covering all three CLINs.

The RFP provided for a best-value award based on an integrated assessment of the listed evaluation factors. The technical, past performance and quality evaluation factors were said to be of equal importance to one another and individually were more important than price, and the small business participation factor was less important than any of the factors. The quality factor had two subfactors: quality program and process control system.

Parmatic protested the agency's evaluation and source selection decision, challenging the ratings under all evaluation factors, except price, with regard to all three CLINs. In Parmatic Filter Corp., B-285288, B-285288.2, Aug. 14, 2000, 2000 CPD Para. 185, we denied the protest in part and sustained it in part. We found that the source selection authority (SSA) reasonably considered the two proposals essentially equivalent under the technical and small business participation factors, and reasonably found Hunter superior to Parmatic under the past performance factor. We sustained Parmatic's protest with respect to CLIN 0001 because the agency's evaluation of both Parmatic's and Hunter's proposals under the quality subfactors was unreasonable and unequal, so that the award selection for CLIN 0001, based in significant part on these ratings, lacked a reasonable basis. /1/ We recommended that the agency reevaluate the proposals, conduct discussions if appropriate, and make a new source selection decision with respect to CLIN 001.

In response to our decision, TACOM conducted discussions on the quality factor and to obtain updated past performance information; no discussions were conducted, nor were revised proposals permitted under the other factors. TACOM made this determination because the evaluation ratings under the other factors were found during the prior protest to be reasonable and because "there was no reason to believe that the ratings relative to these factors would change through additional discussions." Agency Report, Tab 3, Source Selection Decision, at 2. TACOM advised both offerors of the opening of discussions relative to the quality and past performance factors, that only new past performance information from the date of the last submittal was requested, and that proposal revisions would not be accepted with regard to any of the other evaluation factors. /2/ Agency Report, Tabs 4 and 5, Record of Discussions with Hunter and Parmatic.

As a result of the reevaluation, including consideration of the new information submitted in response to the discussions, the proposals' respective ratings under the quality subfactors remained unchanged from the previous evaluation. That is, Hunter's proposal continued to be rated superior to Parmatic's under both quality subfactors; Hunter's proposal received a good rating and Parmatic's an adequate rating under the quality program subfactor, and Hunter's proposal received an excellent rating and Parmatic's a good rating under the process control system subfactor. The past performance ratings were changed, based upon the updated information, to raise Hunter's rating from good to excellent and to lower Parmatic's rating from adequate to marginal.

Based on the reevaluation, the SSA prepared a new source selection decision. Since no significant difference between the proposals was found under the technical and small business participation factors, the discriminating points forming the basis for the new source selection fell under the quality factor and past performance factor, where Hunter's proposal was rated superior to Parmatic's proposal. Hunter's price of $7,235,778.50 for CLIN 0001 was 12 percent higher than Parmatic's price of $6,457,776. In selecting Hunter's proposal as representing the best value to the government, the SSA detailed the reasons for her decision, as presented in part below:

In reviewing the proposals and analysis, Hunter's improved rating under Past Performance and Parmatic's lower rating is significant and I believe merit the payment of a 12% premium. Hunter's performance went from Good to Excellent. Hunter has shown tremendous improvement since its April 2000 production lot failures. It has had minimal problems with resolution of its filter failures. Hunter quickly pursued and corrected the problems associated with these failures and was also able to significantly improve the quality of its filters in the process. Hunter has offered consideration for its schedule delays and has been most concerned with providing an on-time quality product to support the Government's needs. Hunter has fully cooperated with the Government along the way. Hunter not only has corrected its delinquencies but on occasion it has also ramped up production and accelerated deliveries. The firm continues to improve on its delivery schedule record.

In contrast, Parmatic's rating under the Past Performance factor went from Adequate to Marginal. Parmatic's failure to respond to the Government's requests for revised delivery schedules under this contract and its recent production lot failures for essentially the same item clearly reflect a greater risk of performance to the Government. During discussions Parmatic indicated that it did respond to the Government's requests or that it did not do so because it was impractical given the nature of the outstanding lot failures. This response is unacceptable. . . . Parmatic's desire not to maintain a schedule and propose no time line for getting well is troublesome and reflects an overall lack of concern for the government's main objective, which is to provide quality filters on time to the soldiers in the field.

When Parmatic was last evaluated, its performance on its M48A1 filter contract appeared to be improving: most notably, Parmatic had produced seventeen lots without a failure. However, the Government found that Parmatic was susceptible to future lot failures because it could not adequately explain or correct lot failures that it did have. Since March 2000, Parmatic has had four consecutive production lot failures. These failures have caused further delinquencies and their root cause again remains unknown. During discussions Parmatic was given an opportunity to address these failures. Parmatic indicated that the failures were not its fault but were due to defective specifications related to the fines retaining media, compression gasket, and carbon. The Government disagrees. Government engineers have reviewed the technical data and Parmatic's most recent assessments and have concluded that Parmatic has not reasonably shown that the technical data is defective.

. . . . .

Absent a failure analysis with which the Agency can concur, there is still substantial doubt that Parmatic will continue to produce a quality filter on time.

Both Parmatic and the Government have been working diligently to find a solution to Parmatic's problems, but there remains a significant risk of performance on this item. The M48A1 filter is a critical life support item. The lack of deliveries or even late deliveries may jeopardize lives in the case of a national emergency. This is of grave concern to the government.

Hunter also [fared] better than Parmatic under the Quality factor, although the differences here are not as great.

. . . . .

In conclusion, my decision to award to Hunter is primarily based on the significant differences found within Past Performance. The differences under the Quality factor were not as clear. Parmatic's erratic deliveries and possible future lot failures pose an unacceptable high risk. Again, the M48A1 Filter is a critical life support item. In Parmatic's most recent submission dated December 13, 2000, it made the following statement:

Whether or not other production problems will emerge in the future it is not possible to say with any degree of certainty since in the extensive investigations we have carried out on this filter we have identified other potential sources with could result in a problem.

Thus, Parmatic by its own admission is still uncertain that it has attained final resolution for the cause of the failures. Parmatic's continued uncertainty represents serious risk the government cannot assume. I have determined that little or no risk is associated with Hunter's performance overall and that Hunter's superior performance merits the payment of the 12 percent premium.

Agency Report, Tab 3, Source Selection Decision, at 25-27.

By letter of December 15, TACOM informed Parmatic that the agency had completed its reevaluation and had determined to uphold its original selection of Hunter to perform CLIN 0001. This protest followed. /3/

Parmatic protests that it should have received a rating of good under the quality program subfactor, and that the evaluations under the process control system subfactor and the past performance factor were unfair and unequal.

We will examine an agency's evaluation and selection decision to ensure that they are reasonable and consistent with the terms of the solicitation. A protester's disagreement with the agency does not render the evaluation unreasonable. Parmatic Filter Corp., supra, at 5. Our review of TACOM's reevaluation shows that the agency's evaluation of the non-price factors was reasonable and consistent with the terms of the RFP and that Parmatic's allegations do not rise above mere disagreement with the agency.

Parmatic alleges that the reevaluation under the past performance factor was unfair and unequal. Protester's Comments at 12-21. As noted in our prior decision, both offerors had relevant performance histories that included production problems and performance delays; however, Hunter received a higher rating because it had a better record of recovering from the delays. Parmatic Filter Corp., supra, at 6-7. Our decision found this evaluation reasonable. The prior past performance ratings for Hunter and Parmatic were good and adequate, respectively. The agency updated the previous ratings based on the new information received during reevaluation discussions.

The updated information regarding Hunter's recent past performance showed that that firm has had minimal production problems, and has demonstrated excellent cooperative behavior in addressing problems/delays and an ability to correct problems while significantly improving filter quality and accelerating delivery. Agency Report, Tab 3, Source Selection Decision, at 2-5. The agency increased Hunter's rating to excellent. Id. at 5.

TACOM's prior rating of adequate (rather than marginal) for Parmatic was based largely on the offeror's then recent success in the production of the filters, although the agency still assessed some risk because the cause of the earlier filter failures had not been established. Id. at 7-8. Since the prior evaluation, Parmatic's performance under a contract for M48A1 filters had deteriorated significantly. It has experienced four consecutive lot failures; has had numerous delinquent deliveries; and did not propose a revised delivery schedule at the contracting agency's request, which prompted the agency to impose a unilateral schedule revision. Id. at 6-7. As a result of the reappearance of the filter failures, the agency determined that Parmatic has not been able to completely isolate and cure its manufacturing problems. Id. at 8. Based on this recent information, the SSA determined that substantial doubt exists that Parmatic will successfully perform the required effort and lowered Parmatic's rating to marginal. Id. The SSA concluded that "Parmatic's erratic deliveries and possible future lot failures pose an unacceptable high risk." Id. at 27.

During the reevaluation discussions, Parmatic presented an extensive response with regard to its negative past performance, in which it essentially argued that TACOM should not attribute fault to Parmatic for the late deliveries and production failures arising under its contracts, but rather should evaluate the offeror based on the thousands of acceptable filters that Parmatic delivered. Agency Report, Tab 5, Record of Discussions, Letters from Parmatic to TACOM (Nov. 10 and Dec. 13, 2000), attachs. (Report and Addendum). In this report and addendum, Parmatic described corrective actions it has taken to try to identify and correct the recurring filter failures. The report states that Parmatic believes the problem has been resolved based on very recent production success, but also states that there is no consensus as to the cause of the failures. Id., Report at 3, Addendum at 2. Parmatic's report further states that it is impossible to say whether production success after implementing correction is proof that the filter failures has been resolved because its own production history has shown that failures can again arise even after successful production of thousands of filters without failures. Id., Report at 5

The bottom line is that the SSA assessed Parmatic's past performance as indicating a significant risk because TACOM can have little confidence that the failures will not continue to arise in the future, since the cause of Parmatic's failures cannot be definitively identified. Agency Report, Tab 3, Source Selection Decision, at 27. This judgment is not contradicted by Parmatic's report. Given the reports of Parmatic's recent deteriorating contract performance, we believe the SSA reasonably determined that Parmatic's past performance was marginal, and presented a significant and unacceptable risk to the government. /4/

In contrast, the SSA determined that Hunter's proposal did not present a performance risk because Hunter's record of past performance shows that, although Hunter has also experienced filter failures, it has always been able to identify the cause and correct the problem quickly and effectively. Id. at 25. Moreover, Hunter's recent record evidenced successful contract performance, including a record of cooperating with the government to address delays in scheduled deliveries, whether attributable to the contractor or the government, by accelerating deliveries without additional cost to the government. Id. Based on the record, we believe the SSA's determination that Hunter's past performance was excellent is reasonable.

Parmatic's disagreement with the SSA's relative past performance risk assessments for the two offerors is essentially based on the existence of failures and delays in both offerors' past performance records. It does not assert, however, that Hunter similarly failed to definitely identify and correct the causes of filter failure. Although an implication from Parmatic's arguments is that, since the failure experienced by Parmatic cannot be definitively identified and since even long stretches of successful production have not shown that the failures will not again arise, all other producers of this filter, including Hunter, will eventually experience the same difficulties as Parmatic. While this is certainly one possible outcome if the cause of the failures is proven not to be within Parmatic's control, Parmatic has not established this as fact apparent from the current record. Thus, the protester's challenge to the agency's comparative risk assessment of these two offerors fails to rise above mere disagreement with the agency's judgment.

Parmatic also alleges that Parmatic's proposals should be rated good under the quality program subfactor (the same as Hunter's), and the same as or higher than Hunter's under the process control system subfactor. Protester's Comments at 8, 12.

With regard to the quality program subfactor, our prior decision found that the agency's evaluation rating Parmatic's quality program as adequate was unreasonable. Parmatic Filter Corp., supra, at 16-17. The RFP defined a good rating for quality program as having a program that was either certified under International Standardization Organization (ISO) 9001 or ISO 9002, or otherwise met those requirements. Id. at 11. In sustaining Parmatic's protest of this rating, the record before us supported Parmatic's claim that its quality program met the ISO requirements, so that giving Parmatic's proposal a rating lower than good appeared unreasonable. /5/

During the most recent discussions, the agency ascertained that the support for Parmatic's claim of compliance with the ISO requirements was inaccurate and requested Parmatic to demonstrate how its quality program was compliant with the ISO requirements so as to warrant a rating of good. Agency Report, Tab 5, Record of Discussions, TACOM Letters to Parmatic (Sept. 19, Oct. 10 and Oct. 12, 2000), Telephone Call Records (Oct. 10 and 13, 2000). In response, Parmatic provided a copy of a new ISO 9001-based quality manual that it was implementing, which included a copy of an internal audit report showing numerous deficiencies and partial deficiencies. Agency Report, Tab 5, Record of Discussions, Parmatic Letter to TACOM (Oct. 12, 2000), encl., Parmatic's Quality Assurance Manual ISO 9001, Form # 17-2, rev. C. The final statement on this matter by Parmatic before discussions closed was that Parmatic had made the necessary changes to its quality program, which were submitted to a Department of Army activity for review, but that Parmatic "would have to do another internal audit to determine if the deficiencies were taken care of or if they still existed." Agency Report, Tab 5, Record of Discussions, Parmatic Letter to TACOM (Dec. 13, 2000), Telephone Call Record (Dec. 13, 2000).

We believe that TACOM reasonably reevaluated Parmatic's quality program as adequate, rather than good, because the record evidenced only that Parmatic appeared likely to become compliant with the ISO requirements in the near future, but currently fell short of the minimum standard needed for a good rating. The protester's argument to the contrary relies on its general claims of ISO compliance and irrationally dismisses the evidence of its own internal audit showing specific non-compliance. Protester's Comments at 7-8. In any case, the SSA reasonably found that, since Parmatic appeared likely to meet the ISO 9002 standard in the "very near future," she did not consider the difference between the two proposals to be as great as the relative ratings indicated, although Hunter's proposal was properly considered superior under this subfactor. Agency Report, Tab 3, Source Selection Decision, at 26-27. We find the SSA's analysis to be reasonable.

Under the process control system subfactor, TACOM previously considered Hunter's process control system to be excellent. Our prior decision found that the agency's evaluation of Hunter's proposal for CLIN 0001 was unreasonable and unequal because HPS's process control system, not Hunter's, was to be employed in performing the CLIN. We also found, based upon the record, that the HPS and Parmatic were evaluated unequally, and thus unreasonably, under this subfactor. Parmatic Filter Corp., supra, at 18-19.

During the most recent discussions, the agency stated that the information Hunter previously provided about its own process control system was sufficient (Hunter's process control system was rated excellent), but requested additional information about HPS's process control system. Agency Report, Tab 4, Record of Discussions, TACOM Letter to Hunter (Aug. 22, 2000). In response, Hunter described changes in HPS's process control system that incorporated Hunter's process controls, and demonstrated that Hunter's quality program flowed down to HPS through direct control of HPS's operations by Hunter's top executives and by Hunter and HPS having the same quality assurance manager. Agency Report, Tab 4, Record of Discussions, Hunter Letter to TACOM (Aug. 28, 2000), attach., at 1-6. The SSA determined that the additional information provided "solid evidence" that Hunter's and HPS's systems should be jointly considered, inasmuch as the HPS system had been upgraded to the level of Hunter's system, and because of Hunter's active management of its subsidiary's filter manufacturing process, so that the excellent rating for Hunter's system should apply to the evaluation of Hunter's and HPS's joint system. Agency Report, Tab 3, Source Selection Decision, at 17, 27.

Given the additional information submitted by Hunter, and considering that the protester does not challenge either the excellent rating of Hunter's system or the joint analysis of Hunter's and HPS's systems, we believe that the evaluation of Hunter's proposal under the process control system subfactor was reasonable. Parmatic's allegation that the rating is unreasonable because Hunter did not provide any samples of HPS's new work instructions does not demonstrate that the evaluation is unreasonable, given that samples of Hunter's detailed work instructions were included in Hunter's proposal, and since Hunter's proposal clearly states that HPS's work instructions have been upgraded to the level of Hunter's and that Hunter will be exercising direct control over HPS's operations and quality system.

Parmatic also provided additional information further describing its process control system. Agency Report, Tab 5, Record of Discussions, Parmatic Letter to TACOM (Sept. 1, 2000), attach., at 3-9. TACOM's reevaluation determined that Parmatic's process control system deserved a rating of good because its controls were sufficient to produce a satisfactory filter most of the time, thus leaving little doubt that the process control system is effective to ensure process quality. Agency Report, Tab 3, Source Selection Decision, at 17-24. Nonetheless, the agency noted some areas that prevented the agency from rating the system higher than good, including Parmatic's system's heavy reliance on statistical process controls, and Parmatic's proposal's failure to indicate exactly how the information and data generated by the system will be used to improve the process. Id. at 24.

Parmatic alleges that the proposals were evaluated unequally under this subfactor, essentially because both Parmatic's and Hunter's process control systems rely heavily on statistical process controls, yet Parmatic's proposal was downgraded on this basis and Hunter's was not. Protester's Comments at 9-11. This is an incorrect description of this aspect of the evaluation. Although TACOM rated Parmatic's process control system highly, the agency determined that it was not on the same level as Hunter's because Parmatic's proposal did not provide the same level of description as did Hunter's of aspects of process controls other than statistical process controls. Agency Report, Tab 3, Source Selection Decision, at 27. The SSA recognized that although Hunter's proposal was superior under this subfactor, the "offerors were rated very close," with the major discriminator between the two proposals being that Hunter explicitly described how it uses the data generated by the system to implement process improvements and provided a clear plan on how it intends to institutionalize process improvements, whereas this information was not in Parmatic's proposal. Id. Based on our review, we find the agency's relative evaluation of the proposals under this subfactor to be reasonable. Compare, e.g., Agency Report, Tab 5, Record of Discussions, Letter from Parmatic to TACOM (Sept. 1, 2000), attach., at 3-9 (descriptions of tests and inspections do not address how the results are used to improve process controls), with Tab 4, Record of Discussions, Letter from Hunter to TACOM (Aug. 28, 2000), attach., at 6 (statements of how information is used for corrective action and process improvements).

Parmatic also protests the source selection decision on the basis that the SSA's tradeoff analysis did not consider the actual price of Hunter's proposal. Protester's Comments at 4-5. A September 12, 2000 modification issued under Hunter's previously awarded contract (shortly after the issuance of our prior decision) increased Hunter's unit price per filter for revised packaging requirements. Id.; Agency Report, Tab 12, Contract Modification. However, Hunter's price, not including the modification, was that used in the source selection decision. Parmatic states that its proposed price already reflected the revised packaging requirements leading to Hunter's increased price. The protester thus alleges that Hunter's total price is 15 percent higher than Parmatic's, not the 12 percent upon which the source selection decision is based, and that the source selection decision therefore was improper. Protester's Comments at 5.

Where, as here, the agency has taken the corrective action of reevaluating proposals and making a new award selection, the agency should give offerors the opportunity to revise proposals based on any changes in the government's requirements known or anticipated at the time of the new award selection. See The Futures Group Int'l, B-281274.5 et al., Mar. 10, 2000, 2000 CPD Para. 148 at 10-11; United Tel. Co. of the Northwest, B-246977, Apr. 20, 1992, 92-1 CPD Para. 374 at 7-9, aff'd, Department of Energy et al. -- Recon., B-246977.2 et al; July 14, 1992, 92-2 CPD Para. 20; see also NV Servs., B-284119.2, Feb. 25, 2000, 2000 CPD Para. 64 at 17. This allows offerors the opportunity to submit revised proposals on a common basis reflecting the agency's actual requirements and allows for award decisions based upon the agency's most current view of its needs. Here, the agency did not ensure that the price evaluation included the offerors' responses to the most current packaging requirements, and this did not allow for the award selection to be based upon the government's actual requirements.

Nevertheless, even assuming that the agency failed to account for an additional 3-percent difference in price as Parmatic alleges, the protester has not demonstrated that it was prejudiced by the agency's failure. Our Office will not sustain a protest unless the protester demonstrates a reasonable possibility of prejudice, that is, unless the protester demonstrates that, but for the agency's actions, it would have had a substantial chance of receiving the award. McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 CPD Para. 54 at 3; see Statistica, Inc. v. Christopher, 102 F.3d 1577, 1581 (Fed. Cir. 1996).

As stated above, the SSA's cost/technical tradeoff determination was based on the significant evaluated differences between the two offerors under the past performance factor alone, where the SSA determined that Parmatic's record of past performance "represents serious risk the government cannot assume." Agency Report, Tab 3, Source Selection Decision, at 27. Even though the tradeoff in favor of Hunter was based on a 12-percent price difference, Parmatic has not demonstrated any reasonable possibility that an additional 3-percent price difference would cause the SSA to modify her determination that the risk associated with Parmatic's proposal was too great for the government to assume. Moreover, the record reflects that Hunter's proposal was reasonably determined superior to Parmatic's under the quality factor, albeit to a much lesser degree. Given the reasonable and significant evaluated risk associated with Parmatic's proposal under the past performance factor -- which alone served as a justification for source selection -- as well as Hunter's superior rating under the quality factor, the record does not evidence that Parmatic would have had a substantial chance of receiving the award if the SSA had considered this small additional price difference. See Calian Tech. (US) Ltd., B-284814, May 22, 2000, 2000 CPD Para. 85 at 8-9 (prejudice not found where effect of evaluation error was minor, precluding any meaningful change in the selection decision); International Data Prod. Corp. et al., B-274654 et al., Dec. 26, 1996, 97-1 CPD Para. 34 at 15 (same).

The protest is denied.

Anthony H. Gamboa General Counsel

1. Hunter's proposal for CLIN 0001 proposed production of the filters by Hunter's subsidiary, Hunter Protective Systems (HPS), which has a different manufacturing facility than will be used by Hunter on the other CLINs.

2. Parmatic did not object to the limitations on the discussions, nor does its protest now challenge these limitations.

3. Parmatic filed the present protest within 10 days of the agency's new source selection decision, and protests the agency's failure to stay performance under Hunter's contract pursuant to the Competition in Contracting Act of 1984, 31 U.S.C. Sec. 3553. In light of our decision to deny Parmatic's protest, the matter of whether a stay was required is academic. See Emmert Int'l, B-280478, B-280478.2, Oct. 7, 1998, 98-2 CPD Para. 112 at 9 n.8.

4. Adding to this risk was Parmatic's most recent refusal to propose an amended delivery schedule. Agency Report, Tab 3, Source Selection Decision, at 25. Although Parmatic's protest frames this issue as a mistaken agency claim that Parmatic did not respond to the agency's requests for a revised schedule, Protester's Comments at 17-18, the source selection decision states that Parmatic did respond, but that the response (refusal to provide an amended schedule pending resolution of lot failures) was unacceptable. Agency Report, Tab 3, Source Selection Decision, at 25.

5. We also found Hunter's good rating for this subfactor unreasonable based on the record. Parmatic Filter Corp., supra, at 11-16. Based on information provided in the most recent discussions, which included additional information about Hunter's and HPS's quality programs, the agency rated Hunter's proposal good for this subfactor. Paramatic no longer challenges this rating.

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