B-233417, Mar 31, 1992, 71 Comp.Gen. 340

B-233417, Mar 31, 1992, 71 Comp.Gen. 340

PROCUREMENT - Bid Protests - Settlement agreements - Payments - Propriety Where an agency admits to violating procurement regulation but fails to explain why taking corrective action is not feasible, payment to protester under agreement made to secure withdrawal of protest to allow flawed procurement to proceed would be improper.

The Army has requested an advance decision concerning a proposed payment under an agreement between the Defense Supply Service Washington (DSS-W) and Storage Technology Corporation (StorageTek) settling a bid protest the firm filed with the General Services Administration Board of Contract Appeals (GSBCA or Board). We conclude that payment under the agreement should not be made.

BACKGROUND

DSS-W issued request for proposals (RFP) No. MDA903-86-0069 to obtain International Business Machines (IBM) model No. 3380 or equal direct access storage devices. The solicitation required offerors to submit evidence of equipment reliability with their proposals and identified reliability as a technical evaluation factor. In a series of written questions and answers provided to prospective offerors, the agency indicated that offerors proposing to supply extended capacity equipment could use the reliability figures for their other 3380-type products. Following an initial evaluation of proposals, the Army informed StorageTek that it had not submitted adequate information regarding the reliability of the extended capacity storage devices the firm had offered to supply. In submitting its best and final offer, the firm challenged the Army's interpretation of the solicitation's data requirement and did not submit additional evidence of equipment reliability. The Army determined that StorageTek's proposal did not meet the requirements of the solicitation and made award to IBM.

StorageTek filed a protest with the GSBCA under the Brooks Act, 40 U.S.C. Sec. 759(f) (Supp. IV 1986), as added by the Competition in Contracting Act (CICA), alleging that its proposal had not been evaluated properly and that DSS-W improperly had changed its requirements. On the day scheduled for a hearing on the question of whether the Army's delegation of procurement authority should be suspended, DSS-W and StorageTek entered into a settlement agreement under which StorageTek agreed to withdraw its protest in exchange for payment to the firm of proposal preparation costs of $3,000 and legal costs not to exceed $2,000. The agreement stated that it was to remain confidential and would not be filed with the Board. DSS- W did not admit to a violation of any regulation or statute. Upon a motion by StorageTek, the GSBCA dismissed the protest with prejudice.

The DSS-W disbursing officer subsequently declined, however, to pay amounts due under the agreement in the absence of an order from the Board. The Army reports that although the record does not disclose the disbursing officer's specific objection, he apparently relied on the proposition that in the absence of statutory authority an agency may not pay the litigation costs of another party. DSS-W then filed a motion under Rule 35 of the GSBCA requesting the Board to amend its dismissal order to incorporate the agreement of the parties and award the agreed- upon costs. /1/ The Board ordered the parties to show cause why the request should not be dismissed, noting that there was no statement of violation of any statute, regulation, or condition of the delegation of procurement authority. The Army subsequently submitted to the GSBCA a statement by the contracting officer stating that StorageTek's proposal had been evaluated improperly in violation of section 15.608 of the Federal Acquisition Regulation (FAR).

The GSBCA declined to amend its previous dismissal order. The Board pointed out that it is authorized by statute, 40 U.S.C. Sec. 759(f)(5)(C), to award proposal preparation and protest costs only when it finds a violation of statute, regulation, or delegation of procurement authority, and that a violation first revealed several months after dismissal of the protest that has no effect on the relief granted by the Board cannot lead to an award of costs. Storage Technology Corp., GSBCA No. 8810-P-R, 9272- C (8810-P), 88-1 BCA 20,409.

The Army's position is that an agency should have authority to pay costs without incurring the time and expense of litigating before the Board. The agency notes that the "agreement was drafted within the framework of relief authorized by law and reflects the compromise settlement of the parties." The Army requests that it "be allowed to implement the agreement of the parties."

DISCUSSION

We recognize the strong public policy in favor of the settlement of disputes. See Federal Data Corp. v. SMS Data Products Group, Inc., 819 F.2d 277 (Fed. Cir. 1987). The authority of agencies to settle bid protests is not at issue here. It is well settled that agencies have authority to agree to monetary settlements to dispose of breach-of contract claims. August Perez and Associates, et al., 56 Comp.Gen. 289 (1977). In the case of a protest, the contractual liability is based on the theory that the government's issuance of a solicitation implies a duty to consider all responses fairly and honestly. Heyer Products Co., Inc. v. United States, 135 Ct.Cl. 63 (1956). We have recognized that agencies may settle such protests and pay breach-of-contract damages in the form of bid or proposal preparation costs. System Development Corp., B-191195, Aug. 31, 1978.

We believe, however, that the authority of agencies to settle protests by paying money to protesters is not without limitation. In our report, ADP BID PROTESTS: Better Disclosure and Accountability of Settlements Needed, GAO/GGD-90-13, p. 31 (Mar. 1990), we said we would question the propriety of a payment made to a protester where the agency chose not to correct a flawed procurement, but decided to settle the protest merely to avoid operational delays resulting from CICA's stay procedures. This appears to be such a case.

In a statement submitted to the Board after dismissal of the protest, the Army's contracting officer admitted that the downgrading of StorageTek's proposal constituted a violation of FAR section 15.608, which generally requires that an agency evaluate proposals solely on the factors specified in the solicitation. The statement says that the settlement agreement should have reflected this conclusion. There is nothing in the record, however, explaining why taking corrective action was either not appropriate or not possible at the time the protest was settled, which was less than 3 weeks after award.

Damages in the form of bid or proposal preparation costs compensate a protester that has been unreasonably excluded from a competition when it is not feasible to correct the wrongful exclusion. When it is possible to do so, however, an agency should correct a flawed procurement rather than simply enter into a monetary settlement with the protester in order to proceed with the acquisition. We do not believe that in making appropriations available to an agency for the procurement of goods and services, Congress intended those funds to be available to allow the agency to obtain the withdrawal of a meritorious protest without taking appropriate corrective action.

In addition, we also indicated in our 1990 report, supra, that agency officials may not pay attorney fees in connection with the settlement of a dispute in the absence of statutory authority. We are not aware of any statute that would permit the Army to pay attorney fees in the circumstances of this case. Although the Army appears to be relying on the Brooks Act for such statutory authority, the GSBCA has held that the authority under the Brooks Act to award costs extends only to the Board, not the procuring agencies. See, e.g., Systemhouse Federal Systems, Inc., GSBCA No. 9446-C (9313-P), 89-2 BCA 21,773. Here, the forum with authority to award attorney fees has expressly determined that this is not an appropriate case for an award of costs.

We conclude that the proposed payment to StorageTek under the settlement agreement should not be made.

/1/ Rule 35 provides that if the Board determines that a challenged agency action violates a statute, regulation, or the conditions of any delegation of procurement authority, the Board may award an appropriate interested party the costs of (1) filing and pursuing the protest, including reasonable attorney fees, and (2) bid and proposal preparation. The rule is grounded in the statutory authority of 40 U.S.C. Sec. 759(f)(5)(C).