[Protest of Rejection of Proposal]

A firm protested the rejection of its proposal under a request for proposals (RFP) by a Department of Energy (DOE) prime contractor for a seal and flush system. It was the protester's position that the prime contractor's determination that it was nonresponsible, based on an alleged breach of the contractor's conflict of interest agreement and unfounded allegations, and the acceptance by DOE of the contractor's finding and approval of award were improper. The protester submitted that it was informed by the prime contractor that it would be considered nonresponsible on all future procurements. It contended that the nonresponsibility determination and the DOE approval of it constituted a de facto debarment by the prime contractor and DOE. The protester argued that it was entitled to notice of the de facto debarment and an opportunity to be heard. The protester also requested proposal preparation costs. GAO stated that Federal Procurement Procedures do not apply per se to this type of procurement; rather, the prime contractor must conduct procurements according to the terms of the contract with the agency and its own agency-approved procedures and conform to the fundamental principles of Federal procurement. GAO held that the determination of nonresponsibility and the DOE approval of that determination, were arbitrary because: (1) the technical breach of the prime contractor's conflict of interest policy occurred almost a year previously; (2) there was no recent evidence that the protester lacked integrity; and (3) the allegations of poor performance under one contract used to support the prime contractor's determination was not supported by the record. Because the nonresponsibility determination was arbitrary and because the protester had a substantial chance for award, it was entitled to proposal preparation costs. Accordingly, the protest and the claim were sustained.