Matter of: Charles J. Merlo, Inc. File: B-277384 Date: July 31, 1997

Matter of: Charles J. Merlo, Inc. File: B-277384 Date: July 31, 1997

DIGEST

Attorneys

DECISION

Charles J. Merlo, Inc. protests the proposed award of a contract to Mosites Construction Company under invitation for bids (IFB) No. DACW59- 97-B-0009, issued by the Army Corps of Engineers for rehabilitation of the Stoneycreek River in Johnstown, Pennsylvania. Merlo contends that the Army performed an improper pricing evaluation.

We deny the protest.

The IFB was issued by the Army Corps of Engineers' Pittsburgh District on April 28, 1997, as part of the Johnstown Channel Improvement flood control/rehabilitation project, and contemplated the award of a fixed- price contract for 42 "Basic Contract Items" and 22 "Awardable Option Items" to be performed over a 2-year period.

Of significance to this protest, the IFB set forth the standard "Evaluation of Options" clause, Federal Acquisition Regulation (FAR) Sec. 52.217-5, which advised bidders that the government would "evaluate offers for award purposes by adding the total price for all options to the total price for the basic" items, unless the government determined in accordance with FAR Sec. 17.206(b) that evaluation of option quantities was not in its best interests. The IFB also advised bidders that "[o]nly the basic contract items . . . will be awarded initially" since the operation and maintenance (O&M) funding necessary to award the option items was not yet available, but was "expected" to be appropriated by Congress in "future fiscal years."

At the June 18 bid opening, Merlo's price of $4,732,303 was the lowest of the eight bids received for the basic items; however, Mosites' total bid price of $6,162,905 for both the basic and option items was the lowest overall. [1]

Shortly after bid opening, the contracting officer learned that Merlo intended to file a bid protest if the agency failed to invoke the "best interests" provision set forth in FAR Sec. 17.206(b). That regulation provides, in relevant part:

The contracting officer need not evaluate offers for any option quantities when it is determined that evaluation would not be in the best interests of the Government . . . . An example of a circumstance that may support a determination not to evaluate offers for option quantities is when there is a reasonable certainty that funds will be unavailable to permit exercise of the option.

On June 24 and 25, the contracting officer met with several Corps of Engineers officials from the Pittsburgh District to ascertain whether funding for the option items was available. The Assistant Chief, Operations and Readiness Division, of the Pittsburgh District (Assistant Chief)--who is the manager of the Johnstown Channel Improvement project's O&M budget, the source for any option quantity funding--advised the contracting officer that he expected Congress to provide funds for the IFB's optional contract items in both the fiscal year (FY) 1998 and FY 1999 appropriations legislation, as requested by the Army. The Assistant Chief also advised the contracting officer that in the event the option quantity funding was not included in either the FY 1998 or FY 1999 appropriations legislation, or the amount appropriated was insufficient to cover the full option quantity award amount, he would allocate other O&M funds to cover award of the option items.

Based on these assurances, the contracting officer decided that funding for the solicitation's option quantities was reasonably certain, and, consequently, the bid evaluation should include the option item pricing. On June 30, after learning that the Army intended to include option pricing in the bid evaluation--which rendered Mosites the apparent low bidder--Merlo filed this protest.

Merlo contends that "it is an abuse of the contracting officer's authority not to make a determination under FAR Sec. 17.206(b)" to exclude option pricing from the bid evaluation because there is no current funding for the option quantities. Without current funding, Merlo maintains, the option quantities will probably not be exercised and, as a result, "the possibility exists that an award based on [the overall bid price] will result in the Government spending $319,727 more for the base bid work" (the difference between Merlo's and Mosites' base quantity bid price) than if award were based only on the base contract item quantity.

As a general rule, a contracting agency is required to include option quantities in its evaluation for contract award where, as here, it has been determined prior to soliciting offers that the government is "likely to exercise" the options. FAR Sec. 17.206(a). However, FAR Sec. 17.206(b)--which, as noted above, was referenced in the IFB's "Evaluation of Options" clause--authorizes an agency not to evaluate option quantities in making an award (even where the solicitation informs bidders or offerors that options will be evaluated) where the agency properly determines that evaluation of options is not in the best interests of the government. See Mobile-Modular Express, Inc., B-250790, Feb. 22, 1993, 93-1 CPD Para. 159 at 2. However, unless a contracting officer knows with "reasonable certainty" that not all options will be exercised or that evaluation on the basis of all option prices is otherwise not in the government's best interests, the FAR establishes a clear preference for evaluation of bids on the basis of all options. See FAR Sec. 17.206(a); Crowley Co., Inc., B-258967, Feb. 21, 1995, 95-1 CPD Para. 105 at 4.

In this case we see no basis to object to the contracting officer's determination not to invoke the FAR Sec. 17.206(b) "best interests" exception for excluding option quantities from the bid evaluation. Given the Pittsburgh District Assistant Chief's representations that the Army had both requested and expected funding for the option quantity items to be made available in the FY 1998 and FY 1999 appropriations, as well as this official's alternate assurance--confirmed in an affidavit submitted with the agency report--that other available O&M funds would be utilized in the event the anticipated appropriations did not materialize or did not suffice, the contracting officer could not know with reasonable certainty that funding would be unavailable to award the option quantities. See Federal Contracting, Inc., B-250304.2, June 23, 1993, 93-1 CPD Para. 484 at 6 (where there were indications from the agency's internal funding documents that additional funding could become available during the 120- day period following award, there was no basis to object to contracting officer's determination to evaluate options).

Merlo speculates in its comments on the agency report that unforeseen "emergencies" may require the Corps to allocate funding for this contract's option quantity items to another contract or flood control project, and thus contends that the Assistant Chief's assurances do not constitute a reasonable basis for the contracting officer's conclusion that option funding will be available. FAR Sec. 17.206(b) does not require the Army to be clairvoyant in forecasting the availability of option quantity funding. Instead, the regulation's application hinges solely upon a contracting officer's assessment of "reasonable certainty" with regard to the availability of option funding.

Because the contracting officer was advised that funding for the option quantity items would be allocated from future appropriations [2] or existing O&M funds, and since the Army expects to require the option quantity items, the contracting officer reasonably concluded that there is no present reasonable certainty that not all options will be exercised, or that evaluation on the basis of all options is not in the government's best interest.

The protest is denied.

Comptroller General of the United States

1. The breakdown of Mosites' and Merlo's bid prices was:

Basic Contract Optional Contract Bidder Items Subtotal Items Subtotal Total Bid Price Mosites $5,052,030 $1,110,875 $6,162,905 Merlo 4,732,303 1,431,185 6,163,488

2. In its comments on the agency report, Merlo argues that there is no reasonable likelihood of sufficient funding for the option quantities since the FY 1998 appropriations legislation does not allocate sufficient funding to cover the amount of the awardee's bid for these items. Since the Army has made it clear that it will also rely on FY 1999 appropriations to fund the option quantity item award, and that the Assistant Chief intends to use other existing O&M funds to cover any amount not included in the appropriations, we find this argument unpersuasive.