SunEdison, LLC

DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release.

Decision

Matter of: SunEdison, LLC

File: B-298583; B-298583.2

Date: October 30, 2006

DIGEST

Where solicitation required offerors to propose fixed prices and offeror proposed pricing contingent upon –successful completion— of an agreement with a third party, the offer was conditional and should not have been considered for award.

SunEdison, LLC protests the award of a contract to PowerLight Corporation under request for proposals (RFP) No. FA4861-06-R-B501, issued by the Department of the Air Force for the construction and operation of a photovoltaic array to supply solar power to Nellis Air Force Base (AFB) in Nevada. The protester contends that the agency's evaluation of offerors' prices was flawed.

We sustain the protest.

BACKGROUND

The RFP explained that the agency's goal in awarding a contract under the RFP was to reduce its unit cost for electrical service to Nellis AFB to below the rate it was paying the Nevada Power Company, and, thus, if all proposals received were for more than the cost of service from Nevada Power, the government might elect not to award a contract. RFP sect. B.2.3. The RFP also explained that a photovoltaic array produces both renewable energy (solar power) measured in kilowatt-hours (kWh) and renewable energy credits (REC), and that while the agency was aware that an offeror would need to sell both outputs to have a viable project, the government was interested in acquiring the kWh only.[1]

The RFP further explained that the contractor was to operate its solar array, which was to be located on land leased to the contractor by Nellis, –in parallel— with the electricity supplied to Nellis by the Nevada Power Company from outside the base. RFP sections C.2.3.1, C.2.3.2. Accordingly, offerors were required to furnish all equipment (e.g., inverters and transformers) necessary to connect to the base electrical distribution system. Offerors were also required to submit evidence with their proposals that a request to Nevada Power for an interconnect agreement had been made, with no contract to be awarded until an interconnect agreement with Nevada Power had been secured.

The RFP provided for award to the offeror whose technically acceptable proposal was determined to represent the lowest cost to the government. Proposals were to be evaluated on a pass/fail basis with regard to four –mission requirements— (performance plan, financial capability, implementation plan, and quality plan) and with regard to past performance. Price was to be the deciding factor in the selection of a proposal for award from among those determined to be technically acceptable.

The RFP's price schedule asked each offeror to furnish a projection as to the monthly output (in kWh) of its proposed solar array and a fixed unit price per kWh. The schedule also asked offerors for an escalation factor to adjust subsequent year prices for inflation. The RFP explained that total evaluated price would be the net present value of the stream of monthly payments that the government would be expected to make to the contractor over a projected contract term of 20 years. RFP sections M.2.1.1, M.3.4. For purposes of the price evaluation, each monthly payment was to be calculated by multiplying the offeror's projection of the output of its proposed solar array in kWh by the offeror's proposed unit price per kWh. RFP sect. M.3.4. The solicitation further explained that the evaluated first year annual price would be the sum of the monthly payments and that subsequent year annual prices would be calculated by multiplying the previous year's annual price by the escalation factor proposed in the schedule. Id.

Offerors were instructed to explain how they had derived their kWh price in their proposals. In particular, they were instructed to furnish information regarding –tax credits, other incentives, sale of RECs, [and expenses for] operation and maintenance.— RFP sect. L.7.6.2.

The RFP provided for evaluation of the reasonableness and realism of offerors' proposed prices. In addition, the RFP provided for a comparison of the cost of acquiring electricity generated by solar power pursuant to the RFP here with the cost of continuing to acquire it from the Nevada Power Company. RFP sect. M.3.4.3.

Three offerors submitted proposals by the June 16, 2006 closing date. After the initial proposals had been evaluated, the contracting officer furnished each of the offerors with –evaluation notices— describing required information that had not been fully addressed in the proposal or that required clarification. Offerors were instructed to respond to each evaluation notice and to incorporate their responses into a revised proposal.

Upon receipt of revised proposals, the agency evaluators assigned all three proposals ratings of pass with regard to all four mission requirements and with regard to past performance. Accordingly, price became the deciding factor in the selection of an awardee. PowerLight offered a unit price of $0.0223 per kWh, with no escalation factor for subsequent years, whereas SunEdison offered a unit price of [deleted].[2] The price evaluators determined the prices of all three offerors to be within a reasonable and realistic range based on the proposed array size and projected output, projected REC price, tax benefits, operation and maintenance costs, and assumptions for construction and financing rates. The Source Selection Authority selected PowerLight's proposal for award on the ground that –[a]ll offers ranked equally in Mission Capability and Past Performance and PowerLight Corporation's proposal offers the lowest proposed price per kWh.— Source Selection Document, July 21, 2006, at 1. On July 27, the Air Force awarded a contract to PowerLight.

DISCUSSION

The protester primarily argues that the agency's evaluation of the offerors' prices was flawed in that it failed to take into consideration that PowerLight's price was offered contingent upon –successful completion of an REC purchase agreement with Nevada Power,— whereas its own price was offered on an unconditional basis. As explained below, we agree with the protester that the agency's price evaluation was flawed and we find that PowerLight's inclusion of a contingency in its pricing rendered the proposal ineligible for award.[3]

In its initial price proposal, PowerLight made clear that it did not believe that it could confidently predict the amount that Nevada Power would be willing to pay for RECs. In this regard, the proposal provided as follows:

[deleted]

Where a solicitation requests offers on a fixed-price basis, an offer that is conditional and not firm cannot be considered for award. Omega World Travel, Inc.; Sato/Travel, Inc., B-288861.5 et al., Aug. 21, 2002, 2002 CPD para. 149 at 6. Here, not only did PowerLight make its offer conditional upon successful completion of an REC purchase agreement, but further, it acknowledged the uncertainty of such an agreement being reached. In this connection, for an REC purchase agreement to be successfully completed, both parties will need to be satisfied with the REC purchase price, meaning that not only must Nevada Power be willing to buy the RECs, but also PowerLight must be willing to accept Nevada Power's price. Because the RFP here requested prices on a fixed-price basis, it was improper for the Air Force to make award to PowerLight on the basis of its contingently priced offer.

To the extent that the agency argues that it was permissible for it to accept PowerLight's offer despite its pricing contingency because the proposals of the other two offerors contained similar contingencies, we disagree. While Offeror A's proposal did provide for adjustment of its offered price in the event that the REC price received differed from the price that it had assumed, see Offeror A Revised Price Proposal at Revision Page IV-4--meaning that Offeror A's price, like PowerLight's, was not fixed--SunEdison's proposal did not. In this connection, SunEdison noted in its final price proposal (in response to an evaluation notice virtually identical to the one furnished to PowerLight instructing that the Air Force did not intend to renegotiate rates after award of the contract and that failure of assumptions to materialize was not considered to be justification for renegotiation of rates) that one of the key assumptions on which its price was based was a portfolio energy credit price of [deleted].[4] Sun Edison explained that this price was in accordance with a Portfolio Energy Credit Purchase Agreement (PCPA) that it had negotiated with Nevada Power, and that while the agreement had yet to be finalized, –SunEdison assumes the risk of final PCPA pricing and the final PCPA price will not [a]ffect Nellis' Energy Price.— SunEdison Price Proposal, July 14, 2006, at first unnumbered page and at 3. Thus, SunEdison, in contrast to PowerLight, did not make its pricing contingent on negotiation of an agreement with Nevada Power for sale of the RECs at a price that it regarded as acceptable; to the contrary, SunEdison expressly assumed the risk that the final price negotiated with Nevada Power for the RECs might differ from the price that it had used in developing its kWh price and guaranteed that the price that it had offered would not be affected by such a change.

Because we find that the Air Force improperly made award to PowerLight on the basis of an offer that contained conditional pricing, we sustain the protest.[5] We recommend that the agency either reopen negotiations with the offerors to determine whether the pricing contingencies can be eliminated or that it terminate the contract awarded to PowerLight and, if otherwise appropriate, proceed with award to SunEdison as the only offeror to propose fixed prices.[6] We also recommend that the protester be reimbursed the reasonable costs of filing and pursuing the protest, including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(d)(1). The protester's certified claim for costs, detailing the time spent and costs incurred, must be submitted to the agency within 60 days after receiving this decision.

The protest is sustained.

Gary L. Kepplinger

General Counsel